Economic Reasoning

"How did you come to that conclusion?"

People don't often ask that question about the assertions made by economic pundits—economists and media commentators.

When people draw conclusions regarding economic issues, they should be able to explain why they reach those conclusions. If they don't explain, you should call those conclusions into question. But, you need the thinking tools required to help you formulate those questions.

In this section we will discuss the reasoning processes required to come to valid conclusions about economic activity.

Guiding Ideas

Principles, theories, and values, makeup what I refer to collectively as the guiding ideas for economic reasoning. These guiding ideas put economic reasoning on sound footing.

Economic Principles

Principles consist of assumptions that provide the basis for sound economic reasoning. In terms of logic they amount to truths. Starting with these principles and using valid argument we can arrive at only sound propositions.

Economic Theory

We tend to underestimate the importance of theory in most of the activities in our lives. The overlooked importance of theory has a particular importance in economics. Economists frequently confuse correlation with causation. By not testing observations with sound theory they frequently recommend actions detrimental to their desired results.

Values in Economic Reasoning

Although principles and theories exist apart from an economic actor, he must include his structure of values in his economic reasoning.


Deduction provides a form of logical reasoning that leads a person from true premises to sound conclusions. A sound argument, based on true premises, will always lead to sound propositions. This foundation of deductive logic provides the basis for sound economic reasoning.

Deductive Logic

The power of deductive logic comes from the fact that, if you apply valid logic to true premises, you will arrive at a true conclusion. We will discuss the power and importance of deductive reasoning further in pages that we add in the future.

Logically Sound Argument

Logically sound arguments have very specific criteria, yet people discussing markets frequently ignore those criteria. Here’s a brief description of the makeup of a logically sound argument.

Common Fallacies

A huge part of the problem that people face in trying to understand economics consists of the fact that they have many flawed and fallacious ideas about the principles and theories that relate to economics. Based on a list of these flaws and fallacies that I have accumulated over the years I have drafted this document.

Logical Errors

We are developing a list of logical errors that occur frequently in discussions about economics and free markets.

More Reasoning Fundamentals

In addition to deduction, I have found three additional forms of fundamental reasoning that aid in the understanding of economic systems. Philosophy, which also includes deduction, aids in conducting day-to-day thinking; systems thinking helps us understand the connections between parts of markets; and, General Semantics aids in thinking and communication about markets.


The study of reason regarding any subject requires the inclusion of philosophy. We will discuss philosophy in the context of economic reasoning.

Systems Thinking

All economic activity occurs within the framework of a system. Having some understanding of systems thinking aids in the understanding of economic reasoning.

General Semantics

General semantics provides thinking tools for better understanding and communicating economic concepts.

Economic Reasoning — Clear thinking for market action.