Elements of Economics

Elements of Economics

Economics is aptly defined as the science of scarcity (we could say “systematic study” if “science” seems too strong). Philosophy of economics is then the philosophy of scarcity, or of the science thereof. It is in this vein that I write the present words. What, then, is scarcity? Here is a good definition: “Insufficiency of supply; lack of availability, esp. of a commodity, in proportion to demand; shortage” (Shorter OED). It does not mean the same as “rare”, which means “occurring very infrequently”; “scarce” connotes a lack of quantity relative to demand, not just statistical infrequency. Things can be rare without being scarce in the economist’s sense (e.g., the excrement of a dwindling species), because there is little or no demand for the thing. When we speak of demand, we don’t mean primarily a speech act of demanding (“I demand a pound of apples!”); we mean desire or need—preference, utility, degree of wellbeing. We mean a psychological state, expressible in demand behavior. So, we can say that scarcity is proportional to desire and availability: if desire is high and availability low, then the commodity is scarce; if desire is low and availability high, then the commodity is not scarce. Some commodities are not scarce at all: space, time, air, ground to walk on—we have as much of these things as we want (in normal circumstances). Economics is the study of scarcity in this sense: human action in relation to commodity shortfall (I include services under “commodity”); it is about what happens when scarcity obtains. If there is no scarcity, there is no economics, either the science or the behavior. Economic action is action under conditions of scarcity, not plenty. There is no economics in heaven; economics results from finite resources, insufficient goods, shortages of supply. (In hell by contrast everything desirable is scarce and everything undesirable is plentiful, especially pain.) In the real world, scarcity is a natural fact, a fact of nature, and economics deals with the human response to it.

It might be retorted that this definition is both too narrow and too wide. Too narrow because of non-human economic agents (animals, aliens), and too wide because it includes types of behavior not normally classified as economic. The first complaint is entirely correct: we want to make room for animal economic action, though it may be primitive and disputable (e.g., cleaner fish symbiosis), and clearly non-human intelligent aliens could have economies. So, let’s expand the definition to include non-human creatures that live under conditions of scarcity (though I will continue to speak of human agents for convenience). The second complaint is more difficult to resolve and calls for some revision of intuitions and common speech. Consider a predatory tiger hunting for food: the food is scarce relative to the tiger’s desire, but should we say that chasing and killing the prey is an economic act? The tiger is responding to scarcity in a desirable commodity, and is making a sacrifice in order to obtain the commodity in question (“paying a price” in energy expenditure and risk); but the prey animal is not doing anything similar—there is nothing in it for it. There is no exchange of goods, no voluntary mutually beneficial transaction; there is just the predator forcibly taking the life of the prey (compare simple robbery). So, is this an example of economic activity? There is scarcity, need, actual cost, and opportunity cost, so far as the tiger is concerned; but the prey animal is operating under no such set of conditions—it is simply running for its life. If the prey animal were to offer part of itself to the tiger, thus sparing the tiger the cost of chasing it, while preserving its own life, then we might have a case of economic exchange; but no such thing is going on as things actually are. I propose that we describe such a case as “asymmetric economic behavior”: it is an economic calculation for the tiger, but not for the prey. There is no economic exchange, but one party is acting under economic imperatives—coping with scarcity by sacrificing some of its own well-being (its own wealth, we might say). In the same way a human robber is acting under economic constraints by responding to scarcity by acts that carry costs (including opportunity costs). He is thinkingeconomically. True, this is not your typical purchase, but it does meet the conditions for cost-benefit calculation under scarcity. We can then define normal economic exchange as “symmetric economic behavior”, acknowledging a real distinction within the class of economic actions. The case is similar to the question of whether economic action is possible for an individual in isolation: can there be a “private economy”, an economy consisting of a single individual? It might seem that this ought not to be possible, but further reflection suggests that it is just an outlying case not typically encountered but conceptually possible. For consider a man alone on a desert island providing for himself: he lives under conditions of scarcity and must weigh his productive options—should he hunt, fish, farm, or just pick fruit? How much effort should he put into constructing his dwelling? He is a producer and consumer with limited resources and finite supplies of energy; he must provide for his future self under the same constraints as apply to interpersonal production and consumption. He is semi-economic man, but recognizably engaging in economic behavior: he is coping with scarcity by standard economic means—capital, labor, costs, production and consumption. He doesn’t buy anything from anyone else, but that is not essential to economic activity: the key point is that he is responding to scarcity by adopting economic methods. He knows his supply and demand, and he pays the price in terms of labor (he pays for desire satisfaction in the currency of labor, mental and physical). The basic elements are there. In particular, he must always be conscious of opportunity costs, just like any spender of money in a department store; he is always trying to get the best bang for his laborious buck. He plans ways to maximize his utilities given the prevailing scarcities. He may come to the conclusion that hunting for meat is just not economical given the realities of the chase; he is better off fishing or fruit-picking. The OED defines “economics” as “the branch of knowledge concerned with the production, consumption, and transfer of wealth”; by that definition the solitary individual can be classified as part of the subject-matter of economics (he even transfers wealth to his future self in the shape of stored food and re-usable tools). We should not let our conception of the economic be too tightly defined by reference to post-industrial money-centered economies; the basic concepts are more general, more primordial.

Inflation is not itself an essentially monetary phenomenon. Even in a bartering economy inflation can occur. A glut of apples will decrease the purchasing power of apples, as will the introduction of cheap labor into an economy (either wage labor or slave labor). You may find yourself having to do more to obtain less—work longer hours, skip vacations. It might be necessary to fight inflation by reducing the supply of apples or cheap labor (cf. printing less money). The same laws of supply and demand apply to money and to commodities. Banks don’t depend for their existence on money either: you could deposit your commodities in a bank too, earning interest on them, as the bank loans out deposits to interest-paying borrowers. There could be bank runs and financial crises (banks don’t have enough apples on deposit to pay for all the apple withdrawals). Money is just a contingent feature of economies. You could be taxed on your apple possessions and even on your labor resources (e.g., everyone has to pay a flat tax by working on the roads a few hours a week). A society could teach economics to students without even mentioning money (they don’t use the stuff); money is just one form that economic action takes. Economics is scarcity science not money science. When the singer sings that all he wants is money (“Money don’t get everything it’s true, but what it don’t get I can’t use”), he misspeaks; what he means is that he wants the opposite of scarcity—he wants not to be short of what he wants. Poverty is scarcity, desire dissatisfaction (“I can’t get no satisfaction” is more accurate), not a lack of funds.

There is another verbal deformation endemic to the way we talk economically: the division into consumer and producer. You would think there are two classes of people in an economy—those who produce (capitalists, manufacturers, entrepreneurs) and those who consume (customers, buyers, clients). But this is a misconception: everyone is both a producer and a consumer in the very act of economic exchange. First, note that sellers are not always makers of products (concrete consumer goods); people also sell their labor, their expertise, their talent. Philosophy professors are producers, as are actors and doctors and lawyers (et al). Nor is all consumption consumption (food being the paradigm): we “consume” lectures, pop songs, dental treatment, massages. We might better speak of “makers” and “takers”. Then we can say that every act of making is an act of taking, and vice versa. When you give me something I also give you something: you sell to me, but I also sell to you—in that very act. For example, I go to the supermarket to buy groceries: I buy from them, but they also buy from me—they buy my money with their foodstuffs. In exchange for my money, they give me food: they bought my money with their food. My money represents my labor, so they are buying the fruits of my labor with the fruits of their labor. They are consumers of my goods (in the form of money) as I am a consumer of their goods. The relationship is completely symmetrical. It is not that I am the passive (idle) consumer while they are the active (hardworking) producer; they are also the passive consumer of my money, in which I was actively productive. Everyone is simultaneously producer and consumer. I could go into a supermarket and say, “Would you like to purchase some of my money with your food items?” and not speak amiss. It is just a convention that we speak as we do, but it masks the realities of economic life. The relationship is not like speaker and hearer; in economic exchange every act is both an act of consumption and an act of production. The supermarket consumes my money in the very act of my consuming its food. One role entails the other. The two roles are indissoluble. So, it would be quite wrong to say that economies are divided into producers and consumers. Again, the model of industrial economies has too great a hold on the way we understand economic reality; and the institution of money disguises the nature of economic exchange. If I went into the supermarket ready to give philosophical lectures for food, that would convey the realities more clearly; the medium of money is incidental to the proceedings.

Economic reality should really be conceived as split-level. At the level of logical form, so to speak, it is all about scarcity, desire, supply, demand, markets, cost (actual and opportunity), production and consumption, conserving and using, materials and labor; but at the level of existing speech, as it were, it superimposes money, high-street banks, stocks and shares, exports and imports, bosses and workers, profits and taxes—all the apparatus of modern economies. I have tried to sort out the essential and foundational from the contingent and superimposed. Of course, it is worthwhile to study contemporary encrustations, but also worthwhile to distill out the underlying realities. Apart from anything else, it makes the subject more interesting. The science of scarcity need not be the “dismal science”.[1] Current expositions make it sound dry and dull, forbiddingly technical, remote from the human condition; but viewed more philosophically it connects with human life at a more visceral level. We live in a world of scarcity, a world brimming with unsatisfied desire. That is the basic subject-matter of economics, scientific and philosophical.

[1] Thomas Carlyle didn’t mean by this phrase that economics is dismal qua science (though that is often what it means to people today); he meant that it contains depressing truths about the human condition. I would describe it as a “pitiful science” in that it evokes pity for the life of man (and other animals) simply because scarcity is a terrible burden. Its most immediate impact is hunger. Hunger is the central fact around which economics is built.

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