Most modern textbooks will contain a variation of the following famous definition of\neconomics as <\/p>\n\n\n\n
a science which studies human behaviour as a relation between ends and scarce means\n which have alternative uses. <\/p><\/blockquote>\n\n\n\n
This makes economics the study of the logic of choice in conditions of scarcity. This\nis not how most people would understand the term, but check for yourself and you will see\nthat the word scarcity occurs again and again in textbook definitions of economics. Paul\nSamuelson in his Economics,<\/em> in a very widely studied economics textbook, speaks of\na “large scarcity” and says that if goods were not scarce then there would be no\nrole for a science of economics. So, on these definitions, economics is seen as the study\nof the production and distribution of scarce goods. <\/p>\n\n\n\n
The Scarcity Dogma<\/strong> <\/h3>\n\n\n\n
This definition, however, can only be sustained by giving a peculiar meaning to the\nword ‘scarcity.’ The normal sense of scarcity is that of shortage, implying that something\nis in short supply in relation to the claims on its use. The scarcity theory economists,\nhowever, define scarcity to mean the absence of unlimited supplies. Since no good produced\nby humans is, or can ever be, available in unlimited amounts all such goods are, by\ndefinition “scarce”. <\/p>\n\n\n\n
They reinforce this with a second assumption – that human wants are unlimited. This\nprovides a fall-back position, since, if human wants are infinite, even on the normal\nmeaning of scarcity as shortage of relation to uses goods are always going to be in short\nsupply. But this assumption of human wants being infinite is equally dubious since, while\nhuman wants might be great, they are not unlimited. Nor do they exist outside particular\nsocial and historical contexts but are determined by the society in which particular\nhumans are living at a particular point in time and are in practice always limited. <\/p>\n\n\n\n
This school of economics (which is the dominant one today) needs the scarcity\nassumption – whether based on an unrealistic definition of scarcity or on an unrealistic\nassumption of infinite human wants, because it is the basis of its claim that the best way\nto solve the perpetual either-or problem, which they see humans facing when it comes to\ndeciding what to produce, is to have recourse to money, prices and markets. They want to\nbe able to prove that the present economic system, under which most wealth is produced for\nsale on the marketplace, is the best one possible. They need the scarcity assumption, in\nother words, so that they can beg this question. <\/p>\n\n\n\n
The scarcity school of economics is right to see economics as the study of the way in\nwhich what to produce and how to produce it are determined under a market system. Where\nthey go wrong is in making such a system the outcome of “scarcity”. <\/p>\n\n\n\n
Scarcity, in their peculiar sense, has existed throughout human history, but the market\nsystem – where everything, including the mental and physical energies of humans, has a\nprice and where everybody has to have money to obtain what they need – only began to come\ninto existence comparatively recently, about 500 years ago, and has only come fully into\nexistence in places like America, Europe and Japan within the last 100 or so years. It is\nstill not fully developed in most of the rest of the world. <\/p>\n\n\n\n
The basis of the market system is not some eternal scarcity, but the separation of most\npeople from the access to the land which enables them to produce their own food, clothes\nand houses. In other words, its basis is the dispossession of the majority of the\npopulation of all productive resources except their own ability to work and the\nconcentration of the ownership of these resources into the hands of a small minority of\nthe population. It is this, not scarcity, that makes money, prices and the market the\nuniversal features of life they are today. <\/p>\n\n\n\n
We have now reached a definition of economics: the study of the production and\ndistribution of wealth that is produced to be sold on a market. Economics is the study,\nnot of scarce goods but of marketed goods. <\/p>\n\n\n\n
What is wealth?<\/strong> <\/h3>\n\n\n\n
Wealth “is any material object or service that serves to satisfy some human need\nor want.” An individual item of wealth is known in economics as a good. <\/p>\n\n\n\n
Some goods essential to human life, such as the air we breathe and the heat and light\nof the Sun, are provided spontaneously by nature without humans having to do anything and\nso are called ‘free goods’. Most goods, however, including others equally essential to\nhuman life such as food, have to be produced in the sense that humans have to exercise\ntheir mental and physical energies to obtain them, even if all that it involves in some\ncases is picking a fruit from a tree. Most goods, in other words, are products of human\nwork. <\/p>\n\n\n\n
When humans produce a good they are not creating something out of nothing; what they\nare doing is transforming parts of nature into something useful to them. This\ntransformation may, as is the case of the picked fruit, only consist in changing the place\nof some nature-given material; generally speaking, however, a change of form is involved\nas well as a change of place. <\/p>\n\n\n\n
Production, then, is the process of transforming parts of nature into goods. Apart from\n“free goods”, all wealth is the product of human beings working of materials\noriginally supplied by nature. <\/p>\n\n\n\n
Any activity that transforms parts of nature into something useful to humans is\nproductive activity. This is so even if the transformation is merely a change of place, so\ntransportation is a productive activity. So is storage, as preserving the usefulness of\nsome good. Some products of labour are intangible, such as a haircut, and are known as\n‘services’. <\/p>\n\n\n\n
Some people have argued that only tangible goods are wealth, and that therefore only\nlabour that results in some physical product is productive. But they are wrong. The only\ndifference between a tangible and an intangible good, or service, is that in the latter\ncase the product is consumed as it is being produced, but it remains a product. <\/p>\n\n\n\n
Goods can be divided into two main groups. First, those which are directly consumed by\nhumans to meet their personal needs, or ‘consumer goods’. These may be consumed as they\nare being produced (some services) or in one go (as food and electricity are) or over a\nperiod of time (as clothes, and furniture, and houses, are). <\/p>\n\n\n\n
Second, those which are used to produce other goods, or producer goods (also known as\n‘intermediate goods’ and as a ‘means of production’. These are consumed (used up) of\ncourse but to make other goods and now by humans directly. They include materials\nextracted from nature, semi-finished goods, tools, machines, buildings, fuel and means of\ntransport. <\/p>\n\n\n\n
The basis of the market system is not some eternal scarcity, but the separation of most\npeople from the access to the land which enables them to produce their own food, clothes\nand houses. As Sir William Petty (1623-1687) put it, labour is the father of material\nwealth, the earth is its mother. <\/p>\n\n\n\n
However, humans are tool-making and tool-using animals and, apart from very basic\nproductive activity such as picking fruit from a wild tree, production involves a third\nelement: the tools and machinery humans use to transform nature-given materials into\nwealth. These producer goods are of course derived from the other two since they will have\nbeen fashioned into their existing form by past human labour working on nature-given\nmaterials. <\/p>\n\n\n\n
The ‘distribution’ of wealth is simply the way in which what has been produced is\ndistributed – i.e. divided up – shared, amongst the members of society. <\/p>\n\n\n\n
The Market System<\/strong> <\/h3>\n\n\n\n
Samuelson describes the present economic system (his ideal system) as follows: <\/p>\n\n\n\n
Everything has a price – each commodity and each service. Even the different kinds of\n human labour have prices, usually called wage rates<\/em>. Everybody receives money for\n what he sells and uses this money to buy what he wishes. (His emphasis.) <\/p><\/blockquote>\n\n\n\n
So, under the market system the vast majority of goods (though by no means all, as we\nshall see in a moment) come to be produced for sale. A good that is produced for sale is\ncalled, in modern economics, an ‘economic good’ (or, in Marxian economics, a\n“commodity” – note the difference with Samuelson’s use of the same word above to\nmean simply a tangible good). The concept economic good excludes a whole range of\nnon-marketed goods such as housework, vegetables grown in your garden, do-it-yourself\nrepairs and voluntary work. This in itself confirms that economics is concerned not with\nthe production and distribution of wealth in general, but only with the production and\ndistribution of wealth that has been produced for sale. <\/p>\n\n\n\n
Goods produced for the market have an ‘economic value’ in addition to their capacity to\nsatisfy some human need or want, or use value. This economic value is measured by the\nquantity of other economic goods they can be exchanged for. It is generally expressed in\nmoney as their price. <\/p>\n\n\n\n
This means that under the market system the basic underlying physical factors involved\nin production – nature-given materials, human mental and physical energies, and producer\ngoods – all come to have a monetary value. They become ‘capital’. Hence\n“capitalism” as another name for the market system. <\/p>\n\n\n\n
In its original sense capital is a sum of money lent out as interest and is still used\nto mean this today. Under the market system there is another way – it is in fact the\noverwhelmingly predominant way – in which those with capital, or capitalists, can make\nmoney, and that is to use it to purchase productive resources with a view to using them to\nproduce wealth for sale. It is this that turns them into capital. (Note: somewhat\nconfusingly, economists also use the word capital in another sense to refer to fixed\nproduced goods such as buildings, machinery and plant only, thus excluding stocks of raw\nmaterials and of finished products and work in progress as well as the case to pay wages\nand for fuel and services, which accountants, more logically, count as capital). <\/p>\n\n\n\n
The act of purchasing productive resources to engage in producing goods for the market\nis called ‘investment’ and the monetary gain that results is called ‘profit’. The total\nmonetary value of the new wealth produced is a given country over a given period is called\neither the ‘national income’ or the ‘national product’ (the two have the same monetary\nvalue). It is distributed by being bought by the members of society out of the monetary\nincome they receive and which is initially generated at the point of production in the\nform of either wages and salaries or of profits. <\/p>\n\n\n\n
It is these relationships, which only arise when the great bulk of wealth is produced\nfor sale, that form the subject-matter of economics. Economics is the study of the factors\ngoverning the production and distribution of wealth under the market system of production\nfor profit. <\/p>\n\n\n\n
Author: Adam Buick <\/p>\n\n\n\n
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