The Essence of Economics

This is the first entry in what I expect to be a series of loosely connected posts on economics.

Market-based voluntary exchange is an important if not dominant method of satisfying wants. To grasp that point, think of your day: You sleep and awaken in a house or apartment that you didn’t build yourself, but which is “yours” by dint of payments that you make from income you earn by doing things of value to other persons.* During your days at home, in a workplace, or in a vacation spot you spend many hours using products and services that you buy from others — everything from toilet paper, soap, and shampoo to clothing, food, transportation, entertainment, internet access, etc.

It is not that the things that you do for yourself and in direct cooperation with others are unimportant or valueless. Economists acknowledge the psychic value of self-sufficiency and the economic value of non-market cooperation, but they can’t measure the value of those things. Economists typically focus on market-based exchange because it involves transactions with measurable monetary values.

Another thing that economists can’t deal with, because it’s beyond the ken of economics, is the essence of life itself: one’s total sense of well-being, especially as it is influenced by the things done for oneself, solitary joys (reading, listening to music), and the happiness (or sadness) shared with friends and loved ones.

In sum, despite the pervasiveness of voluntary exchange, economics really treats only the marginalia of life — the rate at which a person would exchange a unit of X for a unit of Y, not how X or Y stacks up in the grand scheme of living.

That is the essence of economics, as a discipline. There is much more to it than that, of course; for example, how supply meets demand, how exogenous factors affect economic behavior, how activity at the level of the person or firm sends ripples across the economy, and why those ripples can’t be aggregated meaningfully.

More to come.
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* Obviously, a lot of people derive their income from transfer payments (Social Security, food stamps, etc.), which I’ll address in future posts.

One comment

  1. The “simple” experiment is an easy answer. Too easy. In a lab setting it’s too artificial to be meaningful. And in real life there are too many variables. Further — and most importantly — the value of something to a particular person doesn’t measure the value of that same thing to other persons. That’s why macroeconomics is essentially bankrupt. It’s an attempt to aggregate the value of myriad things, each of which has many different values, depending on who you ask (or experiment with).

    I don’t disagree with your points about the importance of markets. They’re invaluable. It’s just that they don’t represent nearly all of what makes life worth living. That’s a key point of this post. I’ll be making other points in later posts.

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