“The first step to knowledge is a confession of ignorance.” Ancient Chinese Proverb
Thanks to all those that read the prior post where across all four platforms where it was posted there were about seventy views, but not so many answers to the questions provided; I think it was perhaps a little presumptuous in asking too much of viewers’ time to do so. The intent was to illustrate what Thomas Sowell said about definitions of words, i.e., “While the fact that the word is undefined is an intellectual handicap, it is a huge political advantage.”
The ancient proverb above illustrates that giving the quiz right from the start of the course forced students to understand our degree of ignorance; the reaction was energizing and made the course that much more informative and enjoyable. Here are the “correct” answers per the professor together with his explanations, which were technical, not political, i.e., he was not advocating, merely providing definition; they are followed by my comments:
1. Is money an asset or a commodity?
Commodity – it is something of intrinsic value used to facilitate a trade for another commodity, commonly known as a medium of exchange.
Most students and viewers got this one right, but some said it was an asset; back then we were still on the gold standard, which doesn’t exist anymore as all money has become fiat currencies, so the context has changed. Today it’s no longer a commodity, but remains a medium of exchange, but only to the degree its source is trusted, i.e., good faith. On a moral and ethical level, good faith could be an asset, but not a commodity.
2. Is capital money or any asset?
Any asset – while money is an asset, capital is something with a broader economic utilization like land, natural resources, stocks, bonds, buildings, tools…anything of value to society at large.
Nearly all the students and viewers got this one wrong; understandable as in most financial news the word capital is used for funds required for the expansion and purchases of a business.
3. Is trade the essence of an economy?
Yes – as a society progresses it develops divisions of labor, essential for the level of production required to create trade, without which there is no economy.
Most students and viewers got this one right as you can’t have an economy unless there is the exchange of goods and services.
4. Is inflation monetary or fiscal, or both?
Monetary – the cause of inflation is an increase in the money supply, which affects its value, and depending on other factors, may affect prices.
Most students and viewers got this one wrong; again, the context was a prior time when money was a commodity and not fiat. The confusion arises given the manipulation of fiat money which now always affects prices.
5. Is capitalism a cause or an effect?
Effect – it was not invented but observed that the less a society is controlled, the greater the level of production which creates higher levels of capital, hence its name.
Most students and viewers got this one wrong, perhaps because the word evokes political emotions; again, this is a definition, not an advocacy.
6. Is deficit the same as debt, yes or no?
No – when consumption exceeds income it’s called a deficit; if a loan is taken as an alternative to cutting consumption it creates a debt.
Most students and viewers got this one wrong, likely because the media and politicians conflate the issue due to ignorance, which can be contagious.
7. Is the maximization of efficiency and the minimization of cost profit or production?
Production – providing goods and services by nature is a competition for the consumer; there’s no guarantee of profit.
Most students and viewers got this one wrong, again because the media and politicians conflate efficiency and cost as negatives inherent in a free market environment.
8. Is labor part of work or the same?
Part of work – in economics, work includes everything involved in production, including capital, labor, management, investment, resources, etc.
Most students and viewers got this one wrong, perhaps assuming that anything involved in production is “labor”, something physical, an assumption based on poorly defined terms.
9. Is interest the time preference of money, yes or no?
Yes – time is an asset with a variable shelf life, i.e., you either spend your money for immediate consumption, or defer it for future use as in savings and investment, in return for which you are compensated, which is interest.
Most students and viewers got this one right; we all have the choice of either spending or saving, and how we save varies, some in bonds, stocks, CDs, etc.
10. Is an asset’s price depressed by high interest rates, yes or no?
Yes – all asset prices are dependent on both current and future time preferences; the buy or sell price is subject to the cost (interest) of money at any one moment.
Most students and viewers got this one right; high interest rates reflect the high cost of buying any asset, increasing the preference to save rather than spend, consequently depressing demand.
In summary, only a third of students and now viewers got the “correct” answer according to my economics professor, whose explanations were technical, not political, although there was some change over time in context. As a subtext of sociology, economics is a science of observation of human actions. In all sciences it is necessary to establish clear definitions to avoid confusion when communicating ideas; this will lead to an understanding of what is fact and what is fiction, enabling knowledge and a way out of ignorance. In politics there is a tendency to avoid such clarity as definitions get in the way of narratives, an emotional substitute for knowledge, a deception enabled by ignorance.
“It is usually futile to try to talk facts and analysis to people who are enjoying a sense of moral superiority in their ignorance.” Thomas Sowell
Libera Voce 