This map is a vast simplification of how capitalism actually works.

Step 1: Investment (I) Before anything else happens in capitalism, the capitalistmust decide to make an initial investment: establishing their company and startingproduction. This requires an initial expenditure on fixed capital (includingthe workplace itself, and all the machinery and tools inside). The capitalist mustalso provide some working capital, to pay the initial wages of the company’semployees, buy raw materials and supplies, and meet other day-to-day expenses;hence the capitalist needs a certain revolving fund of cash to get production started.(After a full cycle of production has occurred, the company can use some of itsrevenues to pay for those expenses in the next production cycle.)

Worker households This is where wage-labourers live and reproducethemselves. They raise and educate children; feed, clothe, and care for eachother (including sick and elderly family members); and spend essentiallyall of their wages and salaries to buy the consumer goods and services thatthey need to survive and enjoy life. A great deal of unpaid, unmarketed workoccurs inside the household, most of it performed by women.

because it better inspires managers to focus ruthlessly on maximizing the wealthof shareholders.

Similarly, private companies need supervisors and managers to overseeproduction, keep the workforce in line, and make minor business decisions. Butmost of these so-called “management” jobs (especially lower-level supervisors andtechnicians) are just glorified forms of wage labour.

Some workers assume that if they are paid a monthly salary, rather than anhourly wage, then they must belong to a higher “class.”

Most modern jobs and careers fall into the category of wage labour – whether theyare in private companies or public agencies, blue-collar or white-collar, producingtangible goods or intangible services. The stereotype of a “worker” as someonewho performs menial tasks on an assembly line is badly outdated. Workers todayperform a wide variety of functions, many of them requiring advanced skills. Butthey are still workers, so long as they perform that work for someone else, undertheir direction, in return for a wage or salary. Scientists in a research laboratory;surgeons in a large hospital; engineers in a construction firm – these are all workers(although culturally, they may not define themselves as such). They perform theirlabour in return for a salary, they are employed only when their employer desires,and they do not own or significantly control either the organization they work for,or the produce of their labour.

Some jobs link compensation directly to work effort. Piece-work systems, whichpay workers for each bit of work they perform, are one example of this approach; soare contract workers (hired to perform a specific task, and paid only when that taskis completed). This strategy has limited application, however: usually employerswant their workers to be more flexible, performing a range of hard-to-specifyfunctions (rather than simply churning out a certain number of widgets per hour).

Conventionally trained economists take it as a proven fact that free tradebetween two countries always makes both sides better off.

So you don’t need to be an economist to know a lot about economics.

Never trust an economist with your job

Economists actually try to use the production function toexplain productivity differences between entire countries orto explain the historical path of productivity within a country.

Sociologists use a framework that emphasizes group

Is economics a science? Some people, mostly economists,believe that it is. On the other hand, other people, mostlynoneconomists, are skeptical or even scornful of what econ-omists teach.

which says that demand goes down as the price goes up.10 Has thelaw of demand been found to be false?Neither I nor any other economist would be willing to con-cede that the law of demand fails to hold. Instead, we wouldlook for factors that might account for the Ursinus Collegeapplication anomaly

Even more strikingis the fact that almost everything you consume is somethingyou could not possibly produce.

Look at the list of ingredients in the cereal. Those ingre-dients had to be refined and shipped to the cereal manu-facturer. Again, those processes required many machines,which in turn had to be manufactured. The cereal grainsand other ingredients had to be grown, harvested, and pro-cessed. Machines were involved in those processes, and thosemachines had to be manufactured.

I have come to believe in the wake of the MIT trans-formation, which began soon after World War II, that econo-mists have lost the art of critical thinking.