Dismal science illumined

Oxford Dictionary of Economics
October 24, 1997

The jargon of economics permeates more and more deeply the everyday discourse of politics and the media, creating a barrier of comprehension between the seemingly initiated and the laity. But even many who profess understanding find themselves in the position of the eponymous hero of Kingsley Amis's Lucky Jim, a medieval historian who used the word "scholasticism" a dozen times a day without knowing what it really meant.

Present day Jims - or Janes - struggling with the terminology of economics have no more excuses. For John Black's dictionary provides clear and concise explanations of more than 2,000 words and phrases in common use within the discipline. An excellent system of cross-referencing the various entries is a particularly valuable aspect.

Given the highly accessible price, this book is strongly recommended as a handy work of reference for any non-economist who wants to have a better idea about what is going on in economic debates. The scope of the volume goes considerably beyond the world of economic theory. For example, terms connected with personal finance, such as insurance, pensions, negative equity and investment on the Stock Exchange are dealt with. Coverage of international organisations and institutions is extensive, and there are even succinct definitions of a number of concepts in mathematics and statistics which are widely used within economics.

The book is also aimed at students of economics, from A level to the "mainstream" part of first degree courses. Black succeeds admirably in his main task of illuminating phrases for the non-economist. But in appealing to the student with some knowledge of the subject, he faces what is in many ways the even greater challenge of trying to compress whole chapters of economics textbooks into single entries within a dictionary. The orthodox theory of monopoly, for example, is dealt with in just over half a page, which includes a diagram.

These entries will undoubtedly cause difficulty to the non-economist because of the sheer density of the text that is required. But they form a very good reference - or revision - point for students either at A level or where the economics component is not an especially demanding part of the first degree. The book summarises many of the key concepts in standard economic theory, concentrating on an exposition of these elements rather than on extensive references to the great names of the subject and their various contributions.

A particularly pleasing aspect of the book, from which virtually all economists could learn, is that the author is careful not to present economics as being a corpus of received and validated wisdom. A great danger of many textbooks, particularly those with a substantial mathematical content, is that this is precisely the impression that they convey to the student. However, economics is not like engineering, the truth of whose formulae have been demonstrated many times over in practical examples. For Black, a training in economics ought to equip a student to think about the world intelligently, rather than simply to regurgitate "theorems" which may or may not hold good.

An illustration of this is the entry for "endogenous growth", made famous - or notorious - in a speech by the chancellor, Gordon Brown, on "post-neoclassical endogenous growth theory". In the space of just 12 lines, Black explains the differences between this and the more orthodox theories of growth. In the latter, for example, increased spending on investment, training or research and development can only raise the rate of growth of the economy temporarily. In endogenous growth theory, such spending can increase the growth rate indefinitely. The policies of many western governments reflect a belief in the validity of such theory. But, as Black points out, "it is hard to tell which type of growth model gives a better approximation to real world economic growth".

Even more fundamentally, the entry on "profit maximisation" raises questions about one of the core propositions of conventional economic theory. Firms are assumed to gather and process enormous amounts of information efficiently and rationally, to enable them to follow a strategy of maximising profits. Black makes clear that the concept is by no means clear-cut. For example, the time horizon over which profits are to be maximised is relevant because, as many recent practical examples of privatised industries illustrate, there is often a conflict between short-run and long-run profits.

An important school of thought about the firm holds that maximisation is not even a helpful concept. The business world is inherently too complex a place for us ever to know what is the optimal strategy for a company, in the sense of considering all possible alternatives and choosing the best. These ideas are documented as an alternative way of thinking about the firm.

There are two short appendices, one of which, consisting of a listing of the letters of the Greek alphabet, may puzzle non-economists. But it is scarcely possible to look at a single page of a technical mainstream economics journal without encountering these symbols in the mathematical equations of the text. The other appendix lists all the winners of the Nobel prize for economics, providing a challenge for even the best-read of economists to occupy the mind during train journeys or boring bits of seminars. Who are they, and what indeed was their contribution? And who was Ragnar Erisch, one of the very few misprints in an otherwise excellently produced book?

Overall, this book deserves to sell well to a wide audience. It does not pretend to be a substitute for more specialised texts. But it illuminates in a concise and accessible way many of the words and ideas used both in economics itself and in practical political debates on the subject.

Paul Ormerod is chairman, Post-Orthodox Economics.

Oxford Dictionary of Economics

Author - John Black
ISBN - 0 19 280018 3
Publisher - Oxford University Press
Price - £7.99
Pages - 512

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