Economic Thoughts, Part I: What is Economics?

This posting is Part I in a series of postings about economic thoughts.
The excerpts in this posting are taken from Thomas Sowell’s book Basic Economics: A Citizens Guide to the Economy and define what is economics.
Chapter 1: What is Economics?

Virtually everyone agrees on the importance of economics, but there is far less agreement on just what economics is…economics is not personal finance or business administration…
To know what economics is, we must first know what an economy is. Perhaps most of us think of an economy as a system for the production and distribution of the goods and services we use in everyday life. That is true as far as it goes, but it does not go far enough…Without scarcity, there is no need to economize – and therefore no economics. A distinguished British economist named Lionel Robbins gave the classic definition of economics:

Economics is the study of the use of scarce resources which have alternative uses.

… But every era has always been an era of scarcity.
What does “scarce” mean? It means that what everybody wants adds up to more than there is. This may seem like a simple thing, but its implications are often grossly misunderstood…
However, it is not something as man-made as a budget that constrains them: Reality constrains them. There has never been enough to satisfy everyone completely. That is the real constraint. That is what scarcity means…
…nothing has been more pervasive in the history of the human race than scarcity and all the requirements for economizing that go with scarcity.
Not only scarcity but also “alternative uses” are at the heart of economics. If each resource had only one use, economics would be much simpler…How much of each resource should be allocated to each of its many uses? Every economy has to answer that question, and each one does, in one way or another, efficiently or inefficiently. Doing so efficiently is what economics is all about…
Economics is not about the financial fate of individuals. It is about the material well-being of society as a whole. It shows cause and effect relationships involving prices, industry and commerce, work and pay, or the international balance of trade – all from the standpoint of how this affects the allocation of scarce resources in a way that raises or lowers the material standard of living of the people as a whole…
…life does not ask what we want. It presents us with options. Economics is just one of the ways of trying to make the most of those options.
While there are controversies in economics, as there are in science, this does not mean that economics is just a matter of opinion…
All sorts of economies – capitalist, socialist, feudal, etc. – must determine in one way or another how the available resources are directed toward their various uses. But how well they do it can lead to poverty or affluence for a whole country. That is what the study of economics is all about and that is what makes it important.

Part II to follow…

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The Club for Growth Blog
14 years ago

A Primer on Economics

Don Hawthorne at the Anchor Rising blog has a 10-part series on basic economics. With quotes from Sowell, Friedman, and other economists, Hawthorne provides all sorts of good stuff that everyone should know. Go check it out….

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