book reviews

Economics Textbooks
Reviewed by: T.J. Nelson

The Economics of Money, Banking, and Financial Markets
Eighth Edition
by Frederic S. Mishkin
Addison Wesley, 2006


Y ou might think that only those strange rich people up on the hill, the ones who live in their fancy double-wides and own their own bowling shoes, need to know how our financial system works. You couldn't be more wrong. If you know nothing about money, you won't know what to do in the unlikely event that you should ever get some. You also need to know about various financial instruments (like mutual funds and derivatives), so you know what they were when the government steals them.

Although it's supposedly an intermediate-level economics text, The Economics of Money uses simplified language and math-free content appropriate for an introductory undergraduate-level course. The equations that Mishkin includes are mostly of the type a = b, where Mishkin is careful to explain that neither a nor b can be measured. This doesn't mean the equation is meaningless--only that it is useless for predicting things, as are most of the equations in the Dismal Science.

In my opinion, Mishkin overemphasizes the importance of adverse selection and moral hazard in his description of the Great Depression, and he understates the importance of government policy (for example, tariffs) in creating fiscal crises. He also studiously avoids any mention of politics or destructive currency vultures like George Soros, who played a major role in damaging the economies in the Far East during the late 1990s. Important points like derivatives and mortgage amortization are not covered. But this book will provide a clear understanding of the basic concepts in finance, including securities, banking, and interest rates.

Seventh Edition
by N. Gregory Mankiw
Worth, 2009


Y ou don't have to be a fellow Keynesian to appreciate this textbook on macroeconomics by Greg Mankiw, a famous Harvard professor of economics and a visiting fellow at the American Enterprise Institute. Mankiw explains the terminology, the concepts, and the important mathematical relationships used by economists, even giving a set of math problems at the end of each chapter. (The answers are not given, reminding us that economics teaches us one thing: there are no answers!) Anyway, the math used by economists is quite elementary; what bits of calculus are needed are hidden away in footnotes.

While it's true that Keynesianism has taken a beating for its inability to predict or explain stagflation, this sort of thing isn't considered a big problem in economics--sure, the theory doesn't work, it predicts the opposite of what really happens, and it encourages our government to do things that turn us all into Oliver Twist--but at least it doesn't turn the country into a totalitarian state like some other economic theories we could mention.

Speaking of math, economists tend to be somewhat sloppy with equations compared to normal people: abscissas and ordinates on graphs are often switched, and nonsensical equations like C=C(Y-T), where Y-T≠1, are common. And no mathematician in their right mind would use π as a variable for the inflation rate. But economists do.

This book is an excellent introduction to macroeconomics, with the caveat that the reader must keep in mind that most of what the author says is based on economic theories that could turn out to be completely, irremediably wrong. But even if they are, you still need to know about them because so many influential people adhere to them. Indeed, that is a compelling reason to read this book.