by J. Holton Wilson and J.R. Clark
(Cincinnati, South-Western Educational Publishing, 1997), 748 pp.
General Comments: This is a colorful, hardbound textbook that is
written at a level appropriate for most high school students. Its chief drawback is that
it gives too much space to description and too little to analysis to show students how
economists think. For example, the book includes biographies on people as diverse as Alan
Greenspan, Arnold Schwarzenegger and Donna Shalala. Interesting as these may be, the
information does nothing to help the student develop the ability to think like an
Criterion 1: Costs and PricesHow Production is Determined
Wilson and Clark begin by telling the student that "economics is the science that
deals with how society allocates its scarce resources among its unlimited wants and
needs" (p. 7). It is unfortunate to use a macroeconomic definition. Students are more
likely to understand what economics is about (and take an interest in it) if it is
presented in microeconomic termsthe study of purposeful human decision-making. In
the aggregate, millions of human decisions do "allocate societys
resources," but it is best to start with the individual as the unit of analysis.
Other than that, the book is very good in its explanation of the fundamentals of
economicsscarcity, choice, opportunity cost, and so on.
Wilson and Clark are very clear in their treatment of the three basic economic
questions and the ways in which the organization of a nations economic system will
give different answers to those questions. Unfortunately, they waste a page describing the
"Goals 2000" program (p. 27). This reinforces the tendency to focus on noble
objectives and intentions rather than thinking economically about costs and benefits,
means and ends.
The books treatment of the way in which the pursuit of self-interest leads to
prosperity and harmony (Adam Smiths "invisible hand") was too brief to
convey to the student the nature and efficiency of free markets.
The book capably covers supply, demand, price, and market dynamics, but not until after
the discussion of market failure and other intervening material. It would be better to
cover how markets work much earlier. The authors describe the effects of mandatory price
floors and ceilings, including the minimum wage, and the authors correctly draw out their
implications. However, a more complete analysis of the ways businesses react to a
mandatory increase in the cost of labor would have done more to stock the students
Criterion 2: Competition and Monopoly
Wilson and Clark do a good job of describing the different types of market structures
from perfect competition to monopoly, and how they affect a firms decision-making.
The authors make it clear to students that monopolies are not immune to the laws of
One important omission, however, is the significance of potential competition. The book
briefly mentions Alcoa to make the point that control over a necessary resource can confer
monopoly status upon a firm. The authors fail to note that Alcoas history is one of
continuing improvements and efficiency. The firm has behaved in a very competitive manner,
fearing that it might attract competition if it does otherwise. The disciplining force of
potential competition in a free market is a point that ought to be discussed.
The authors also need to explain how hard it is to keep a monopoly or cartel when there
is free entry into the market. One of the widely held beliefs regarding monopolies is that
big firms can easily kill off smaller rivals to create a monopoly. The book reinforces
this idea, saying, "If one company grows so strong in the market that it pushes out
all other products, there will be no competition" (pp. 104-05). That "if"
calls for much more analysis.
Finally, the book says little about antitrust. The Sherman Act is mentioned only once,
in conjunction with labor unions. Students ought to learn why the governments
attempts to maintain market competition have often produced more cost than benefit.
Criterion 3: Comparative Economic Systems
Wilson and Clark explain that in a command economy, "The varieties and choices of
goods and services in the market are limited to what the central planning committee
decides will benefit the whole society. The goods and services produced do not have to
pass the difficult test of individual market choice" (p. 53). This is true, but it
gives the student only a superficial idea of the great problems that central planning
entails. The conclusion that the consumer suffers in a command economy comes through
clearly enough, but students need a detailed case study of the economic problems that have
arisen when government planners have tried to run economies. Also, the book needs some
discussion of the problems involved in making the transition from a command to a market
Criterion 4: The Distribution of Income and Poverty
The book devotes many pages to a description of poverty (some history, breakdown of
poverty by age and race, how the poverty line is calculated and more) before getting down
to an analysis of its causes. The authors break them down to three: unemployment, low
productivity, and restrictions on job entry. The authors case for the first is weak.
The average duration of unemployment is only about 10 weeks (the fact is not mentioned)
and rarely do workers who have been in the labor force but lost their jobs fall below the
poverty line before finding new employment. The discussion of low productivity is
excellent. Pay is inevitably linked to productivity and people who, for whatever reason,
cannot produce much cannot earn much. As to restrictions on job entry, the authors confine
their analysis to labor union practices that keep people from pursuing certain kinds of
work. A more thorough analysis would have gone into the various laws and regulations that
pose even greater obstacles to entry into the labor market.
The authors only briefly discuss job discrimination as a form of labor market
restriction. Many economists, however, doubt that job discrimination is widespread in the
free market or that it has much actual impact on the poverty rate.
A key omission in the book is the high degree of income mobility in the U. S. (or any
free economy). Despite the various union and government impediments, there are many ways
for people who begin life poor to become wealthy, and many do. There is also considerable
downward income mobility. Students should understand that the rich do not necessarily stay
rich and the poor do not necessarily stay poor.
Finally, the books analysis of government anti-poverty programs focuses more on intentions
than on results; it is in the latter where the student learns to apply economic
Criterion 5: The Role of Government
The authors define public goods as "goods and services available to the whole
society" (p. 57). Just because government makes a good or service available to
everyone does not mean that it is a "public good." Public goods are those that
the market would under-provide because of the inability to require that all who benefit
pay. Sound economic teaching would show students why national defense, for example, is a
public good, but why schools, libraries, stadiums, and many other government-provided
goods are not.
Wilson and Clark make a weak argument that education is a public good because it
produces positive externalities for the entire society (p. 88). It does, but it does not
logically follow that education is a public good and ought to be produced by government.
Education is a human capital investment that improves the individuals earning
capacity; others who wish to benefit from that productivity must pay for it. There is no
free rider problem and no reason to believe that there would be general under-investment
in education in the absence of government provision.
Also weak is the books contention that government provision of passenger rail
service (Amtrak) is a public good. After acknowledging that many economists view Amtrak as
a waste of resources (it incurs substantial losses on virtually every route), they write,
"keeping the trains running does provide train service in places where it is vital to
our nations interest" (p. 108). The student who wants serious economic analysis
is bound to ask why it is in "the national interest" to keep passenger trains
running where there are alternate, less costly means of transportation available.
The book also explains that government action may be necessary to deal with the problem
of negative externalities, such as pollution. But when it comes to discussing the means by
which government does this, Wilson and Clark fail to address the efficiencies of the
various approaches to pollution control.
Finally, with regard to government income distribution, the authors state that
"the public sector can redistribute income more efficiently than the private
sector" (p. 111). This, however, is a highly disputed opinion, not economic analysis.
Government redistribution programs are riddled with unintended consequencesand
students ought to think about results more than intentions.
Criterion 6: Public Choice
The book contains a short summation of the main tenets of public choice theory in a box
on p. 102: the rational ignorance of voters, the interest group effect, and political
shortsightedness. The interest group problem is discussed more fully on p. 115. The
student is informed that "Special interest groups are very powerful
politically," but the authors never explain why this is the case, or its impact on
There is only a fleeting reference to "rent-seeking" when the authors write,
"There will always be individuals and groups who try to use the public sector to
their advantage. There will always be situations where smaller groups and individuals
benefit at a cost passed on to everyone in the society" (p. 116). But that
shouldnt end the discussion. Whats needed next is an analysis of the great
waste and inefficiency that can occur when those efforts succeed.
Criterion 7: The Role of the Entrepreneur
The treatment of entrepreneurship is good. Entrepreneurs, Wilson and Clark write,
"must take the risk that their finished products can satisfy a need, be attractive to
consumers, and sell at a price that covers the cost of production. Entrepreneurs take the
risk that the product will produce profits" (p. 84). True, but the section would have
been stronger if they had stressed that most new ventures fail; the occasional, successful
entrepreneur who produces enormous wealth is the needed incentive that keeps people
searching for new and improved products and services.
Criterion 8: Taxation
The books section on taxation has too much description and too little analysis.
Many pages are devoted to telling the student why the government collects taxes, how it
spends the tax revenue, how state spending differs from federal, what the
"principles" of fairness are, and how taxes are classified. Finally, we come to
tax incidence. The authors explain that the entity paying the tax does not always bear the
real burden. They illustrate this point with the corporate income tax, writing,
"Economists generally agree that the combination of stockholders, employees,
consumers and the corporation itself all bear some part of the corporate tax burden"
(p. 548). But since all wealth is ultimately owned by people, "the corporation
itself" cannot bear any part of the tax. Instead of showing the student that taxing
corporations is simply a means of disguising taxes that must be paid by others, this
sentence may encourage them to believe that tax authorities just havent come up with
the right formula for making "the corporation itself" bear the whole tax.
The authors include a fairly lengthy discussion of Social Security, and consider the
tax incidence problem, writing that "the employers share of the Social Security
tax can be shifted" (p. 552). This is too vague. Economists widely accept the
argument that the employers "contribution" to Social Security comes
entirely at the expense of lower gross earnings for employees. Unfortunately, the authors
do not tell the student that Social Security currently reduces the pay of workers by
15.3%; nor are they enlightened as to any of the financial problems that confront the
program or of the costs it imposes on the economy. Indeed, the book paints an indefensibly
reassuring picture: "Social Security payments have, on the average, amounted to more
than the amount paid in by each taxpayer (including the employers
contributions)" (p. 551). That has been true in the past, but many analysts insist
that it cannot continue that way.
Finally, missing from the entire discussion of taxation is its costthe diversion
of resources away from the private sector, the collection and enforcement costs, the tax
codes creation of artificial incentives and so on.
Criterion 9: The Business Cycle
There is no concentrated discussion of the business cycle in the book. The student
learns that we occasionally suffer from recessions and depressions, but never learns why.
When Wilson and Clark mention the Depression, they blame it on insufficient demand, which
gives the student only the outdated and much-criticized Keynesian view. One of the most
important of economic controversies is between those economists who argue that the market
economy is unstable and needs frequent government intervention to avoid booms and busts,
and those who argue that the market economy is inherently stable, but is thrown into
disequilibrium when government tinkers with it. The student learns very little of this
The authors discuss the problems with "fine tuning" the economy through
fiscal policy (the time lag problem, the difficulty in getting accurate economic forecasts
and the political bias towards over-spending). They note that there are economists (the
term "Monetarist" is correct, but they do not use it) who favor relying upon a
fixed rule for monetary policy instead of discretionary policies. Those points need fuller
Criterion 10: Wages, Unions and Unemployment
The book correctly explains wages in the market as a matter of supply and demand, no
different from the determination of other prices. Then comes a good analysis of the
effects of minimum-wage laws. Unfortunately, the next step is a misleading discussion of
"comparable worth" legislation. The costs and inefficiencies of having
government officials decide upon the price of many different kinds of labor in an effort
to make things "fair" have been analyzed at great length by economists. But the
authors write, "While it is difficult to quantify these aspects of a job, doing so is
seen as a step in the right direction" (p. 337). While a few people think
"comparable worth" is a "step in the right direction," most economists
do notin any case, merely presenting this normative conclusion does not help the
student learn how to think like an economist.
The treatment of labor unions is also unsatisfactory, repeating the long-disproven idea
that legal injunctions were frequently used to stop strikes and conveying the mistaken
impression that non-union ("yellow dog") contracts were only a management tool
to thwart unions.. The authors fail to provide any economic analysis of the impact of
unions. They merely write, "unions helped to balance out the bargaining power between
labor and management" (p. 339). The phrase "bargaining power" has been
criticized by economists as empty and misleading, since economic relationships are not
based on power, but on voluntary exchanges for mutual benefit. The economic effects of
unions on prices, employment, and productive efficiency are important, but the authors do
not explore them.
Criterion 11: Trade and Tariffs
The authors write about international trade as if it were a macro phenomenon
("Nations trade with each other because . . .) rather than a micro phenomenon of
individual action. The law of comparative advantage is also explained in this way:
"Germany" produces steel, "England" produces cloth, and then they
trade so that "both countries will be ahead" (p. 632). National considerations
are not irrelevant, but the students need to remember that individual Germans and
individual Englishmen do the producing, trading, and benefiting.
The book correctly states that tariffs and quotas make imports more costly for
consumers, but neglects to say that prices of domestic goods usually rise also. The
arguments for and against tariffs are accurate, but too brief to really inform the
The section on international payments begins with a discussion of the gold standard
that misses its paramount advantagea disciplining effect upon the natural tendency
of governments to inflateand instead concentrates on the temporary disadvantages a
nations economy would suffer from a trade imbalance. The fact that inflation would
lead to a trade imbalance and economic pain was one of the disciplining virtues of the
To make matters worse, the authors mention "favorable" and
"unfavorable" balances of trade at the end of the chapter, leaving the student
with the impression that "unfavorable" trade balances must be harmful. This is
the central fallacy of mercantilism, and the book does nothing to ensure that the student
does not fall into it.
Criterion 12: Money and Banking
Wilson and Clark explain the functions and benefits of money, but the student gets no
sense of the market origins of money. When they come to the monetary system of the U. S.,
they leap right into a discussion of the Federal Reserve, its structure and functions,
without explaining why and how the nation went from commodity-based money to fiat money
under the control of a central bank.
The book says nothing about the Feds track record and especially its role in the
Great Depression. Also, the connection between the actions of the Fed and inflation is not
clear. When considering inflation, the authors discuss "demand-pull" inflation
without saying anything about where all the dollars come from. They also present the
"cost-push" theory to the student as economic truth ("a rise in the general
level of prices that is caused by increased costs of making and selling
goods"p. 460). Many economists, however, deny that you can have a general
increase in prices without an increase in the supply of money.
The discussion of banking is accurate as far as it goes, but there is no analysis of
the effects of regulation in the banking industry, most notably the Savings and Loan
fiasco and how unsound government insurance policies contributed to the problem.