Economics Defined

Simply put economics is defined as the allocation of scarce resources that have alternative uses. Allocation means policies, social and governmental systems within which one vies for resources. Scarce means there’s not enough to go around. Resources are all the things in your life that make it better, whether it be the servant you hire to clean your house, the intellectual resource that you pay for when your fridge breaks, the shingles on your roof that keeps the rain off your bed or the gas that you put in our car. Alternative uses means that the resources can be used for more than one thing. A piece of wood can be used to build a piano or a house for example. But which one ought it be used for? Economics answers that question.


7 responses to “Economics Defined

  1. reframefinance

    You define economics as the allocation of scarce resources. This is but one definition that has been advanced, and a very narrow one. In particular it completely omits ‘production’ and thus all of industry, innovation and technical change (surely a central aspect of economic life) from the scope of economics. When you add production to your economic model, most resources are no longer scarce in that you can choose to produce more. There are a few scarce resources at the bottom of the production supply chain (e.g. land) but these are the exception.

    I’ve been reading an Italian economist by the name of Pasinetti lately. Can I recommend reading Ch 1 (Introduction) of his 1981 book entitled ‘Structural change and economic growth’: 25 invaluable pages. He shows how the definition of economics you have advanced, omitting production, is the natural consequence of analyse everything through the marginalist methodology which worked so elegantly for analysing consumption. Unfortunately, these methods are inappropriate for analysing production. But many economists — rather than abandon the method that is so prized — abandon the subject of study in favour of the method.

    • This blog, you may have noticed, is tailored to those who are not interested enough in, or are intimidated by, the concepts of economics; hence the short and simple posts with simple themes. While I’m sure that there are more complex definitions, I think this one suffices for the purposes of this blog. One must understand first that economics is not about currency denominations but ultimately about the allocation of scarce resources, if they are to grasp a deeper understanding. (you and I have a fundamental disagreement if you hold that resources are no longer scarce). Ultimately however, the word is defined, and the header exists, exactly because it has so many definitions.

      Besides I am convinced that simplicity is a wonderful thing. Any one person may endeavor to lean the complexities of a given discipline, like say medicine, but that does not mean that others can’t learn the basics and so fair better in live because of it, like say not attempting to live off pop and potato chips. Moreover, I am convinced that complexity provides cover for a lot of chicanery in economics. I have a post in the queue that speaks of “first things” in which I expand on this some. I have also written before on it here:

      • reframefinance

        I guess my concern is that you are not restricting your commentary to the scope of economics that concerns only exchange of given goods. Indeed, in your Economics Defined paragraph you already refer to:
        i) services (that can be considered as a particular kind of production (” the servant you hire to clean your house”)
        ii) production of commodities from commodities (“A piece of wood can be used to build a piano or a house for example”)
        If you want to talk about these things then your economic theory needs to include production.

    • Oh yes, I’ll keep your reading suggestion in mind. Those 25 pages would not be available on the internet would they?

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