The Study of Economics: Principles, Concepts & Applications
by Turley Mings
(Guilford, Conn.: Dushkin Publishing Group, 1995), fifth edition, 526 pp.
The fifth edition of The Study of Economics introduces economic concepts through
examples from current issues, such as the fall of communism, the information superhighway,
NAFTA, deforestation, and health-care reform. Its examples, then, are up to date, but the
research isnt. Mings fails to incorporate much economic research of the last two
decades on monopoly, taxation, regulatory agencies, and business cycles. Students,
therefore, come away with a benign view of government and a perception that market failure
is rampant. Mingss examples are often those used by Keynesians in the 1940s and
1950s, not those used by most economists today.
Criterion 1: Costs and PricesHow Production is Determined
Mings begins by explaining the central role of scarcity and the need for individuals to
make choices. He then articulates the scientific method and explains the central role that
hypothesis testing plays in testing whether or not an economic policy makes sense. Next,
he develops the notion of opportunity costs. Mings nicely explains how scarcity
necessitates trade-offs as a means of determining which choices make the most sense.
The author asks and answers basic economic questions through the use of case studies on
the "peace dividend." Here Mings adeptly shows both the negative consequences of
job loss in the defense sector (p. 38) and the efficiency gains from conversion to other
types of industry (p. 48).
Mings then explains what determines prices in the marketplace. He introduces the twin
concepts of demand and supply along with the forces that drive the market price toward
equilibrium. Along the way he analyzes the effects of price changes and notes that
government involvement can also be a source of higher prices. The section revolves around
the demand and supply of peanut buttera good choice of product for students.
Criterion 2: Competition and Monopoly
Mings uses the standard treatment of market structure by dividing markets into four
categories: perfectly competitive, monopoly, oligopoly (he uses the term "shared
monopoly" here), and monopolistically competitive. The section is surprisingly only
10 pages. Mings never develops the cost curves that analyze the profits of firms; instead,
he presents diagrams that show total revenue and total cost. While this approach has some
advantages, it fails to develop the thinking that is essential for business
decision-making. Also, Mings uses the DeBeers Company, the worlds largest diamond
manufacturer, as an example of a monopoly. However, due to the evolving nature of the
industry, DeBeers no longer has anything near a worldwide monopoly. Intense competition
from Russian firms, and new diamond finds over the last 10 years, have eroded the share of
the market held by DeBeers. So, at best, the example given is merely historical. Mings
should have used an example of a pure monopoly (such as a public utility) to further drive
home the distinguishing features of a monopoly.
Criterion 3: Comparative Economic Systems
Early in the book, Mings describes the major economic systems. His central contention
is that as societies become more specialized and interdependent they need economic systems
to organize and coordinate production and distribution. He highlights four economic
systems: the market economy, the centrally directed economy, the traditional economies and
the mixed economies. The market economy is thoroughly described and Mings uses the example
of Russia to explain why it is hard to go from a centrally planned economy to a
market-based one (pp. 68-69).
Mings explains how the market economy resolves the central economic questions through
the underlying factor and product markets, creating incentives for entrepreneurs and
establishing a circular flow of funds. Essentially, in a market economy one persons
spending becomes another persons income.
Much later in the text, Mings examines the alternatives to capitalism. He writes,
"communism, socialism, and welfare statism are fading into history" (p. 439). He
uses data from the International Monetary Fund to contrast the growth rates of the former
Soviet Union, Asia, the European Community and United States. He argues that the stagnant
growth rates in Europe cannot sustain the cradle-to-grave welfare systems in place in many
of the nations (p.441).
Mings also examines the impacts of capital investment, inflation, and unemployment in
different economic systems. The outcome of each system is compared with respect to its
environmental consequences, impact upon economic security, and equity. The section is
balanced and the advantages and disadvantages of each system detailed. Mings concludes
with a biographical sketch on Karl Marx. He points out that while Marx will remain an
enduring social critic, his reputation as an economist has "dimmed" (p. 462).
Criterion 4: The Distribution of Income and Poverty
The Study of Economics explains the distribution of income as arising from two
sources: differences in productivity and differences in opportunity. There are problems
with the analysis. The text fails to mention that differences in productivity are far more
important in determining earnings than are differences in opportunity in the U. S. today.
Mings develops the Lorenz curve to show the degree of income inequality. This graphic
nicely displays the difference between the current income distribution and what would
arise with complete equality. However, Mings misses the chance to use the tool
appropriately. There are two problems here. First, the Lorenz curve compares the existing
level of inequality with an egalitarian ideal, which, if implemented, would ruin the
economy (no serious economist believes that complete equality as expressed by the Lorenz
curve should be a policy goal). Second, Mings fails to show Lorenz curves for different
points in time. If this approach had been implemented it would have shown that the degree
of inequality (as measured by the Lorenz curve) was practically unchanged from the period
Instead, Mings focuses on minor variations in the income distribution. He misuses data
from the U. S. Bureau of the Census to argue that the income distribution is now more
unequal than it was a generation ago. This analysis does not consider the overall rise in
income, nor does it control for differences in education, work experience, and motivation
across groups. In other words, people are moving up and down the income scale as they
become educated, change jobs, take risks, and retire from business. The Lorenz curve
misses this mobility.
Mingss analysis of poverty is very weak. He argues that the welfare programs of
the Johnson administration during the 1960s lowered the rate of poverty in this country,
only to have the trend reversed by the "cuts" during the Reagan years. This
argument is pure political mythology, completely devoid of analysis. Actual poverty rates
remained constant during the 1965-1995 period. Mings writes, "in the 1980s, decreases
in work training opportunities . . . slowed progress on increasing opportunities for
economically disadvantaged groups" (p. 238). In fact, the tax cuts of the 1980s
created greater incentives for poor people to escape poverty by fostering economic growth
and creating more jobs in the private sector. Mings goes on to write that "in the
short run "throwing money at the problem raised some 30 million people
out of poverty" (p. 239). This claim is false and ignores recent scholarship by
Charles Murray and Marvin Olasky. Mings needed to ask two key questions. First, at what
cost are the 30 million people raised out of poverty? Without that information, students
cant evaluate whether or not the benefits of welfare programs outweigh the costs.
Second, what about using these funds to spark employment through the private sector? For
Mings to suggest that "throwing money at the problem" is a positive solution is
to ignore how incentives are changed when one group is receiving tax dollars and another
group is paying them.
Criterion 5: The Role of Government
The economic role of government is explored in great detail. Mings argues that
governments should be responsible for regulating monopolies, protecting consumers,
workers, and the environment. He argues that the creation of government regulatory
agencies since 1887 has produced better products, services, fairer hiring practices, less
pollution, and safer working conditions. He gives some attention to deregulation (such as
with the airline industry), but the thrust of the section is to portray the public sector
has having a widespread role in managing the affairs of the economy. Moreover, even though
the text points out that deregulation "resulted in lower prices and better services
for the consumers" (p. 195) the photo above this caption above shows passengers
stranded at the airport when an airline carrier went bankrupt. This approach sends a mixed
signal about the desirability of deregulation.
The text ignores the problems of government regulation and the adverse effect it has on
economic growth and entrepreneurial activity. For example, leading historians such as
Albro Martin, former professor at Harvard University, argue that government regulation
through the ICC damaged the railroad industry and made it uncompetitive by the 1930s. Many
antitrust scholars, such as Robert Sobel and D. T. Armentano, argue that the antitrust
laws have made many American industries uncompetitive in foreign trade. The only
acknowledgment Mings makes that there are competing theories about government regulation
is in his biographical sketch on the Austrian economist F.A. Hayek (p. 211). Hayeks
work on socialism and the questions surrounding government involvement in the economy are
noted. The solution that Hayek presents, namely that all public-sector activity be subject
to a cost-benefit analysis, is mentioned as an alternative to the frank acceptance of the
public sector as arbiter of economic affairs.
Criterion 6: Public Choice
Mings fails to include the recent research in public choice theory. Since the 1970s,
economists have increasingly come to understand that interest groups dramatically
influence bureaucrats and politicians. Government action, in other words, is not a
reflection of public interest but of pressure from powerful lobbyists. We are also
increasingly able to document unintended consequences that occur from government
actionall of which must be calculated when we assess government intervention and its
costs and benefits. When Mings first wrote this text in 1976, public choice theory was
new; but by his fifth edition 20 years later, he needs to show more awareness of it.
Criterion 7: The Role of the Entrepreneur
Scarcely a paragraph is devoted to a discussion of the entrepreneur. The text defines
an entrepreneur as "a particular type of human resource" (p.10) who sees the
possibility of profitable production and is capable to organizing resources to produce
goods and services. While the definition is adequate, the text fails to explain how
entrepreneurs contribute to the advancement of society. Also, there are no concrete
examples of successful entrepreneurs offered to spark reader interest. Instead the text is
more concerned with factors of production, such as land, labor and capital. These topics
are clearly important, but no more so than the person who transforms them into useful
Criterion 8: Taxation
The principles of taxation are treated under the umbrella of public finance. Mings
examines government spending and revenue sources and highlights the growth of government
spending during the 20th century (p. 353). He explains the various sources of taxation and
explores the questions of equity, efficiency, and incidence.
One concern that Mings relegates to a small paragraph is the benefits principle of
taxation, namely that taxes should be paid by those who use government services. He
discusses the equity of various taxation schemes throughout this section and concludes tht
the value-added tax (VAT) is the fairest of all taxes. Mings bases his argument for the
VAT partly on its deceptive qualities. It is superior to a sales tax because "the
public does not have a constant tax irritant to react to" and that there is likely to
be "less squealing than with a normal sales tax" (p.350). This is a curious
argument because the efficiency of taxation depends upon all parties correctly perceiving
the true costs of taxation. Since the amount of the VAT is concealed at the point of
purchase, many people think they are not paying taxes when in fact they may be paying a
Criterion 9: The Business Cycle
Mings compares the business cycle to a roller-coaster ride. Expansions follow
recoveries and eventually reach a climax at the peak of the business cycle. As the economy
starts downward, it experiences a contraction and eventually the entire process starts
over again. This analogy works up to a point. However, Mings writes that, "as the
economy starts its downward plunge, it rapidly gains momentum. Widespread bankruptcies
result in a collapse of the credit market" (p. 296). This section implies that the
severity of the contraction phase causes substantial hardship. In truth, contractions are
often short and relatively mild. In only a few instances have contractions led to severe
recessions or depressionsand in these cases, many economists argue, government
action spurred the problem.
The Phillips curve is used to explain the trade-off between inflation and unemployment.
The Phillips curve was developed as a tool for balancing and controlling the fluctuations
in the business cycle. This tool has been almost completely discredited in the last 10
years and yet it remains an integral part of Mings analysis. The discussion of the
business cycle would have been better if Mings had used more historical examples and
focused on policies designed to alleviate economic instability. He does mention the stock
market crash of 1929, but he ignores the Crash of 1987, which was twice the magnitude (in
absolute terms) of the 1929 crash. Of course, the Crash of 1987 is less dramatic because
the economy did not slip into a depressionbut that makes it all the more useful as a
Criterion 10: Wages, Unions, and Unemployment
The text is right on the mark when it writes that, "labor unions affect wages,
although perhaps not as much as people think" (p. 221). Mings explains collective
bargaining and describes the major pieces of legislation governing labor practices. He
looks at unemployment by examining the underlying root causes. The discussion is centered
around jobs for Generation X, and focuses on the types of employment being created in
todays economy. This section is informative and easy to read.
Criterion 11: Trade and Tariffs
Mings does an excellent job of handling international trade. He describes the principle
of comparative advantage and uses this to argue persuasively for free trade. Along the way
he chronicles changes in U. S. imports and exports to show how the distribution of jobs
and commodities are affected.
Next, Mings asks why we restrict foreign trade. He examines tariffs, the
most-favored-nation clauses in many trade agreements, quotas, and embargoes. After
explaining how trade is restricted, Mings then dispels the traditional protectionist
arguments. For a case study, he presents Frederic Bastiat, the French economist who
satirized the protectionist position.
Last, Mings uses the Smoot-Hawley Tariff act to show the dangers of import
restrictions. Many economists blame the Smoot-Hawley act for creating the downturn of the
1930s. Mings uses trade balance data from the 1920s and 1930s to drive home the point that
the Smoot-Hawley was a primary culprit for the Great Depression.
Criterion 12: Money and Banking
The text describes how money works, how it is defined, what money is used for, and how
it is created. There are interesting case applications on credit cards and how POWs used
rations during World War II as a form of money.
Mings chronicles the history of the Federal Reserve System and argues that it is needed
to prevent market failure. He criticizes banks in the nineteenth century for
"unrestrained issuance of currency and imprudent lending" (p. 263). He provides
no data, however, to back these criticisms. Mings then describes how the Fed works and the
ways in which it influences monetary policy.
Much later in the text (completely apart from the chapter on money) Mings addresses the
gold standard, from a negative perspective. He argues that the gold standard was
associated with periods of "high inflation and severe depression" (p. 434) but
does not explain how these conditions arose or why the gold standard was to blame. He also
does not explain why inflation became so much greater after we went off the gold
standard. Mings avoids blaming the Fed for cutting interest rates in the mid-1920s, and
hiking them after 1929. A fairer treatment of the gold standard would place it within the
section on monetary policy so that it could be more directly compared with the Federal
Reserve System of today.