One of my sons gave me a stack of books for Christmas:

• Common Sense Economics
• The Constitution of Liberty – Frederich A. Hayek
• The Law – Frederic Bastiat
• Knowledge and Decisions – Thomas Sowell

I am currently reading Common Sense Economics: What Everyone Should Know About Wealth and Prosperity and really learning from and enjoying it! This book is written by three college professors: James D. Gwartney, Richard L. Stroup, and Dwight R. Lee in a surprisingly easy to read style intended for the average person.

Common Sense Economics

Part 1 – Ten Key Elements of Economics

1. Incentives matter.
2. There is no such thing as a free lunch.
3. Decisions are made at the margin
4. Trade promotes economic progress
5. Transaction costs are an obstacle to trade.
6. Profits direct businesses toward activities that increase wealth
7. People earn income by helping others.
8. Economic progress comes primarily through trade, investment, better ways of doing things, and sound economic institutions.
9. The “invisible hand” of market prices directs buyers and sellers toward activities that promote the general welfare.
10. Too often long-term consequences, or the secondary effects, or an action are ignored.

People earn income by helping others.

I found #7 particularly interesting because we often hear in the media and in political discussions that wealthy people exploit others to gain their wealth and that big capitalist corporations are bad, and other broad statements like these. Politicians love to pick on this group and blame all sorts of evil social problems on their greed and selfishness.

However, when you stop and think about it, this view cannot be true. If I want to increase my wealth (as I am trying to do everyday at my business, or you are by working each day at your job) then I have to figure out how to help others in ways that create more value to them. If I am unwilling to do this, my chances of wealth and employment go down dramatically. The only way I can grow my business is to help more people in ways that are more valuable to them.

Even people who are not motivated by a strong personal desire to improve the world around them have to develop skills and perform actions that are valuable to others.

There are big exceptions to this general principle such as we witnessed with the 2009 Bernie Maddof scandal where he actually did become wealthy for a time by exploiting others. However, look at what happened. He was found out and is now paying the consequences. Thankfully, our market economy tends to weed these “bad apples” out and expose them for their unethical and criminal behaviors. Thankfully we have a legal system that generally prosecutes those who break the rules of fairness and who overrun the rights of others.

The bottom line is that I agree with the authors that wealth comes from providing products and/or services that other people value.