Economics explains the world

If you can only read one book about economics, I would highly recommend “How Economics Explains the World: A Short History of Humanity” by Andrew Leigh, published by Mariner Books, 2024. This book has been highly recommended by Claudia Goldin, winner of the 2023 Nobel Prize in Economics. It has been described as a “sweeping, engrossing history of how economic forces have shaped the world.” The other feature of this book is that it is the most readable book on economics that I have read – and it is all of 200 pages only.

It has also been recommended for people who are curious but confused about economics. It is a story about key moments in the world’s economic history that created the economies we see today around the globe. It is also the story of how economic forces have shaped history. It is a story of how economics explains the world we live in today.

In the Preface to the book, there are a series of questions that the book tries to answer. Why didn’t Africa colonize Europe instead of the other way around? What happened when countries erected trade and immigration barriers in the 1930s? Why did the Allies win World War II? Why did inequality in many advanced countries fall in the 1950s and the 1960s? How did property rights drive China’s growth surge in the 1980s? How does climate change threaten our future prosperity?

These are some of the questions that the book seeks to answer.

It is divided into 14 chapters which together is the story of the way economics has shaped the story of our species.

The first chapter begins with the story of how the modern human species evolved in southern Africa around 3,000 years ago. It discusses the beginning of the agricultural revolution and explains that some of the regions of the world were more amenable to farming than others. For example, Eurasia had goats, sheep and cattle which could be used for milk, meat and hides. By contrast, African zebras and Australian kangaroos are harder to tame.

The shape of continents was also critical. Eurasia’s is wide, while Africa’s and America’s are long. This means that people could explore and exploit Eurasia while staying in the same climatic band. Eurasia’s people did not have to develop new ways of surviving in an unfamiliar environment. Inhabitants in Africa and America had the more arduous task of traveling north and south. This explains why Eurasia colonized Africa, America and Australia.

It also tells the story of prominent economists throughout history. Alfred Marshall was the most influential economist at the beginning of the 20th century. His book “Principles of Economics” became the most common textbook at that time. He popularized the theory of market equilibrium, which is the point at which supply meets demand. He also started the method of conveying ideas through diagrams and examples. These are methods that economists have used to teach students ever since.

Another prominent economist described in the book was John Maynard Keynes, who argued that economic problems like the Great Depression happened because people’s actions affected one another in unexpected ways. For example, he said that being thrifty may seem like a virtuous habit but if the result is that consumption goes down, the economy will suffer. His solution – Keynesian Theory – was for the government to spend money ideally on public works projects to restart the economy. This theory is still very popular among governments even today.

Another economist in the book was Paul Samuelson, whose ideas I studied during my college years. He believed that a free market could not achieve full employment and therefore, governments must intervene in times of crisis. He also popularized the idea of comparative advantage, which shows that when two countries trade with one another, both can stand to benefit.

In one of the chapters, the author Leigh says that throughout the history of mankind, technology has driven revolutions in economic activity. He says: “Having a trading partner is not a threat, it is an opportunity. Trade is at the heart of the modern economy and the opportunity it has generated.” This has become very relevant advice today mainly because of President Trump, the world is going through an era of protectionism.

Leigh defines economics as a social science that studies how people maximize their well-being in the face of scarcity. It also studies how public policy might address the problems of poverty, climate change or price fixing.

A principle of economics that is very relevant to our world today is that dramatic changes are due to new technologies or changing policies. We cannot control the advent of new technologies, like the Industrial Revolution before, the internet today and artificial intelligence in the near future. However, it is governments and the people who control public policy and societal characteristics like corruption, which also drastically affects the quality of life.