I will let you into a secret. This is that people who present papers such as this have to offer provisional titles months in advance. The world of academic economics is a world -- I would even say industry -- of its own. Although I have been observing it for some years, it is as an outsider. To make a professional assessment of good and bad economic theory one would have had to be either a full time economic academic -- or at least a philosopher of science specialising in this area.

One cannot help noticing that economics is not seen even by the educated public as a particularly exciting growth area. You only have to go into any half-serious bookshop to see the boom in books on popular science, some of them meretricious, but some of them at a very high level. Nothing of this kind exists in economics where you only see textbooks, business guides and the occasional polemic against capitalism and all its works. The public could even be right. Despite numerous technical advances and the enlistment of computer technology, it may well be that there has been no great development in fundamental economic ideas comparable to that in evolutionary biology or the mushrooming of rival cosmological ideas about the age of the universe or the nature of time. But not everything can be exciting. The Common Law or the principles of hydrostatics matter even though they are not at the cutting edge of intellectual development.

A lot of time is spent in discussing whether economics is, can be or should be a science. It is also wasted in arguing about the role of mathematics, which is simply a useful language, but not an end in itself. A worthwhile field of investigation might be not the philosophy of economics or its logic, but the economics of economics. In other words to treat economists as they treat other economic agents, as people trying to gain as much as they can from operating in the market place. The rewards of this market as in other markets will be some mixture of cash, prestige and congenial conditions but you have to start out by asking where the demand is.

As I have already made my own attempt at this kind of analysis, I will not repeat it today (1). Instead I shall list a few of the main economic ideas which might be of value to people with no particular interest in mastering techniques or passing exams in the subject.

It is a matter of temperament whether one attaches more importance to key principles or to detailed applications or to research at the frontiers. There is also a political sub-text. Those who emphasise principles are suspected of having what Professor Solow calls a "right wing libertarian" agenda and are afraid that research results are all too likely to be used as an excuse for government intervention. There is something in this. But politics is not everything.

As someone who has to present economic ideas to a partly non-specialist public, I have had to make a deliberate choice between publicising and backing ephemeral pieces of research - liable to be overthrown by the next document from another university with a different ideological prior - and sticking to basic ideas which change more slowly and which readers are less likely to have to unlearn.

To give an analogy. Some popular science writers like to go to town on numerous contradictory stories:- for instance saying that Prof.X "has shown" that certain kinds of fat diet can, suprisingly, help you to lose weight, only to be followed by another story, soon after, that Professor Y has overthrown the idea. Sure, this is much more exciting than emphasising basic physiological or nutritional principles. But it is likely to leave the reader confused, and either totally sceptical of experts of all kinds or believing only those experts who agree with his preconceptions.

At any rate, here for what it is worth, is my list of basic ideas. They have very different logical status.

1. (At the risk of boring you). Demand curves slope downwards. If the price of a product becomes higher less of it is bought. If it becomes lower more of it is bought.

   At first sight this is so trivial as to elicit the response: "It did not take an economist to tell me that." The proposition only becomes interesting because of the numerous cases in which it is denied. The controversial example is of course wages. Any number of public figures have a vested interest in denying that if you pay a group of people more, less of their services will be demanded. A very different example is congestion taxes. If people have to pay more to take their cars into town centres at busy periods more people will either stay at home or use public transport. Yet another example are the numerous and erroneous assertions that the demand for a country's products have nothing to do with the exchange rate.

2. If a higher price is offered more of a product will be supplied, and less if a lower price is offered. This is not quite as general as the law of demand. The narrower, or more specific, the product or service in question the more likely it is to apply. I am as sure as I am of anything that if nurses' pay were doubled, without a corresponding increase in other kinds of pay, that more nurses would be forthcoming and the problems of the Health Service would be much alleviated.
3. A much more interesting principle is that of comparative advantage in international trade. Most people can see that if one country is more efficient at producing steel and another at producing bananas it pays to specialise and exchange. But what not one person in a hundred appreciates is that it still pays to trade even if one country is more efficient at making both bananas and steel, say because it has a highly developed hothouse industry.

   The comparison that matters is not between the cost of making a product in one country or another, but the ratio of costs within the same country. If the United States can produce 10 bananas for every ton of steel while Brazil can produce 100 bananas, it pays for the two countries to trade with each other. even if the USA can make both products more cheaply. There is no need for Brazil to protect itself against superior US efficiency by restricting imports of either bananas or steel. My guess is that if the theorem were properly stated it would cause an outcry in most parliaments of the world.

   The conclusion that countries of very different levels of development and efficiency - in the modern jargon countries that are a long way from convergence - can still trade profitably is important even if the content of the trade has to be observed by the market and is not easily predicted by academics.

4. The circular flow of income. I am not quite sure what the logical status of this concept is;and the absence of a verb is deliberate. But it is important nonetheless. Most perverse pieces of neo-protection spring from ignoring it. The point is that there is a continuing flow between purchasers who desire to buy, the incomes received from supplying their needs and still further purchases.

   The ignorance of this flow is probably the most important single source of perverse economic policies today. For instance it is assumed that if Britain loses arms orders in pursuit of an ethical foreign policy that the workers in the arms industries will simply waste away in idleness. It is not asked whether there will not be other purchases at home or abroad to make up the difference. To take another example: many alarmist writers worry about what will happen once China or India are able to produce cheaply vast quantities of products which are now made in the West. But few people go on to ask what the Chinese and Indians will do with their export earnings. Presumably they are selling these cheap goods to make living and not to line their bank vaults with sterling, dollar or euro notes.

   The circular flow of income can be helped by sensible policies, such as efforts to maintain an adequate but not excessive flow of total spending; and here is where the contribution of Keynes is relevant. The interested citizen needs to know mainly that there is, or can be, such a circular flow and that there need be no fear of one country being undercut in everything by another.

5. If total spending ("aggregate demand") rises sufficiently quickly the result will be inflation. It may seem question-begging to say "sufficiently quickly". But we are much more sure of the principle than we are of the exact speed limits. A few orders of magnitude can be given. There are very few conomies where spending can rise at above 5 per cent per annum without inflation; and at above 10 per cent inflation is almost certain.

   A sudden or unexpected drop in total spending - or even in its rate of increase - is likely to produce not merely lower inflation or lower prices, but recession and unemployment. This is normally expressed by saying that wages, and possibly prices, are "sticky downwards".

   These two assertions taken together seem to me to embody the element of truth in both monetarism and the Keynesian Revolution, without being dogmatic about highly controversial more specific relationships. But I have to admit that I have been unsuccessful in persuading economists that this is the case. They prefer, even when talking to the general public, to assert more detailed dogmatic propositions ones, for instance about the role of money or about the rate of capacity utilisation at which inflation takes off, which can only confuse the interested spectator.

6. Opportunity costs. This is not any kind of even vaguely scientific law. It is simply a useful idea. Most people when they talk about the cost of something mean how much money they have to spend. The idea of opportunity costs is to look behind this and ask what we have to give up in order to acquire certain products. In many instances the money cost is as good an approximation as we can hope to get. But there are instances when it is wide of the mark. Take a museum on a weekday morning with very few people in it. The extra resources we have to sacrifice to admit a few more people are infinitesmal. Take the same museum with a popular exhibition on a Sunday afternoon. The cost of every extra visitor is, in the short term, the inconvenience of queuing and lesser enjoyment for those who are already in it. In the longer term it is seen in a greater expenditure on museum staff, maintenance and perhaps in the end an enlarged building. I leave the implications for the debate on charging for you to think about.
7. This leads one to another useful concept. This is to look at the impact of marginal changes. In other words instead of looking at the impact of using peak hour electricity on total cost, look at the extra cost involved.
8. When private market institutions are working badly look at the structure of property rights. This is not a magic wand. It is very difficult for instance to establish a property right to fresh air; and if it were there might be a horrendous amount of litigation. The principle is simply a hint to examine something which would not occur to those innocent of economics. One obvious contemporary example is that of fishing rights. The plain man will not see much alternative to arguments about fishing quotas and territorial disputes. But the economically literate will not be surprised that the absence of property rights to the sea bed should lead to over-fishing.
9. Another maxim is to look for price mechanism remedies. Too much argument at the moment is between environmentalists who want an ever growing list of activities to be prohibited and red-faced businessmen who protest that the country's prosperity is being strangled. Why not however ask whether by putting an appropriate tax on activities with undesirable overspills we could not reduce their extent without having to stop them altogether? Or, if there have to be quotas, does it not help to make them tradeable so that they will be purchased by those who can make best use of them? As far as I know Iceland is the only country that has so far established a system of individual transferable share quotas for fisherman in its territorial waters.

   These principles of looking at price mechanism remedies and property rights are often the most promisinmg approaches to tackling the market failures which obsess so many econmists of interventionist bent.

10. The saying of Adam Smith: the sole purpose of production is consumption. People may make things for a hobby and they may take legitimate pride in the products they make for lawful gain. But in the end you have to ask why they make x rather than y. And you do then reach the needs or desires of the consumer. It has been fashionable to call for more investment. But the only rational ground for more investment is to increase our capacity to produce; and the only rational ground for that is to satisfy the consumer even more.
11. Another Adam Smith assertion: that people will benefit their fellow creatures more if they follow their self-interest than if they consciously strive to serve other people. The basic reason for following Smith arises from a critical inspection of human history, which can never be a hard science but which can lead to such plausible inferences. The test is to compare the success of societies which have allowed a good deal of scope for self-interest or profit-seeking with those which have tried to regulate everything in the supposed public interest.

    The self-interest doctrine depends, of courese, on many background conditions, such as the rule of law, an accepted system of property rights and some limits on criminal activity. Again the assumptions cannot all be stated a priori. We discover what they are in conditions when they are absent, such as in many post-Communist countries today. There is thus government failure as well aas market failure.

12. Economics as a subject has an individualist basis. The effects of policies are assessed by looking at their impact on individuals. This has nothing to do with selfishness. One can reasonably take into account feelings of altruism which may exist. The difference is that they are examined in terms of the well-being and interest of those who feel altruistic. Economists adopt these procedures mainly because they cannot think of any others. But I am very happy with them for philosophical reasons which I have explained elsewhere (2).
13. The following assertion is more speculative and, as far as I know is not to be found in any textbook. It has often been noticed that some people, especially leaders in business or fashion, want to amass far more wealth than they can possibly use even on the most self-indulgent and sybaritic basis. The ultimate explanations here probably reach back into evolutionary psychology and the competition of the male animal to fertilise as many females as possible. We benefit from this seemingly irrational fetish. If Henry Ford had stopped developing the motor industry when his own personal wants had been satisfied the cheap mass-produced car would have been long delayed. If the Medici rulers of Florence had stopped acquiring wealth when their personal needs were satisfied we would not have had most of the art and architecture of the Renaissance. The desire to pile up endless treasures beyond rhyme or reason would not be a healthy basis for the great mass of human activity. But we all benefit from the fact that some people are made that way
14. Income differentials. Why do people in comfortable and congenial occupations sometimes earn more than those doing difficult and dangerous work? Economic ideas can give at least a handle on this problem. The question is: why do not people move from the less attractively rewarded to the more attractive jobs until the differentials are evened out. The obvious answer is that many people cannot make such a move. But why? They may not be eligible for the more comfortable jobs, for instance, through lack of qualifications. Here the fashionable emphasis on education and training may help; but not all differences between people can be eradicated.
15. More important from a policy point of view are the barriers that the more favoured groups erect against entry. Apart from obvious cartel restrictions, such groups may insist on unnecessarily high or irrelevant entry qualifications. Or they may try to use the governments to limit entry by hook or by crook. Highly respectable professional such as lawyers and doctors are well versed in such techniques. The hottest such issue now concerns immigration where entrenched domestic lobbies will go to any lengths to stop immigration that threatens their positions.

Some of you will have noticed that I have said nothing about Pareto Optimality, chaos theory, Nash equilibrium, the NAIRU, the so-called Fundamental Theorem of Welfare Economics, multiple equilibria, and a good many other concepts - not even maximisation. This is not because they are unimportant or uninteresting; nor because interested observers should be debarred from following the debate. It is simply that they are much more items of professional discussion and investigation than ones which politicians, permanent secretaries and business leaders would be better off if they understood

Neo-classical economics, as anyone who receives articles and letters in a newspaper office will know, is certainly not the only paradigm for analysing economic behaviour. There are any number of others from business schools, economic historians, academic students of politics and from those who make it up as they go along. If support from political and commercial forces. If there is a demand for any policy justification, the supply will certainly come. It may come from an orthodox economist supplying a twist or wrinkle to his own subject -- such as the so-called New Trade Theory. Or it may come from one of the less mainstream sources.

The main reason for favouring a formal approach is not the rather pious reasons put forward by the academic industry but a rather practical one. It may well be true that insight, intuition and common sense are more important than either mathematical reasoning or formal forecasts. But one cannot rely on there being a sage like Keynes or Milton Friedman on the spot.

Most policy decisions most of the time will have to be taken by highly fallible human beings operating, as they have been brought up, in a conventional mode. The main virtue of formal training is to limit the scope for disastrous error by people of this kind. A similar justification may apply to policy frameworks such as inflation target or medium term budgetary rules. It is all too easy to pick holes in them from a perfectionist standpoint; but the conomic rule book needs to be judged by the prevention-of-disaster criterion rather than by how well it conforms to some idealised notion of what theoretical physicists are supposed to offer. We cannot rely on having sages.