What is Economics?
Channel: misesmedia
Date: 2020-08-10

Economics often is considered a dry or “dismal” science. In schools, it is often taught with a focus on abstract supply and demand charts or complicated mathematical formulas. When we think about economics or “the economy,” we think about money, goods, or services — or perhaps government policy. Although these are aspects of an economy, economics at its core is about human actions.

It’s about the choices and actions we make as individuals. It’s about our individual wants, needs, and abilities. And it’s about how we interact with others to benefit each other and build the society around us.

Imagine, for example, if a single person were stranded on a deserted island.

For this person, let’s call him Bob, the top priority is obvious — survival. He needs water, food, and shelter. Some of Bob’s resources are obvious; there may be coconuts or berries that can be foraged for food. Just as important, however, is his time. He must economize his time, dedicating it so as to best ensure his own survival. Does Bob focus on finding water, or does he dedicate his first few hours to building a shelter? Right away, Bob is forced to make decisions about trade-offs — the costs of making one decision over another.

Bob may decide that he can survive three days without water and so focuses instead on creating a shelter for the night. Another person in this situation may choose differently, but it is Bob’s individual judgment that guides the choices he makes.

Bob’s decision may not be the right one. Risk and uncertainty are an inherent part of our human existence. Perhaps Bob ends up spending so much time building a shelter that he does not give himself enough time to find water when he desperately needs it. Bob’s decision affects the number of days he can survive on the island. In this case, his profit is measured in terms of the number of days he is able to live having made this choice. A loss could be his death.

Notice that Bob’s economic decisions have nothing to do with money—they are simply the choices that he makes facing an uncertain future.

Luckily most of our economic decisions are not matters of life and death, but basic decisions that we all make every day. These decisions all have costs and benefits that must be weighed by the individual, and this is as true for every person anywhere in the world as it is for someone on a deserted island.

Economics does not tell us what any individual should do.

Instead, economics is about understanding the costs of our decisions, about understanding how we can create value by satisfying our wants and the wants of others, and about the ways that we as individuals all play a role in contributing to the rise—or fall—of human civilization.

Questions:

How often are your daily decisions actually economic decisions?

Do you find it useful to think about trade-offs when making decisions?

Is economics about making you rich, or about better understanding the world around you?

Articles:

"Economics Is Not Rocket Science — It's Even More Complicated" https://mises.org/wire/economics-not-rocket-science-%E2%80%94-its-even-more-complicated
"Star Trek is Wrong, There Will Always Be Scarcity" https://mises.org/library/star-trek-wrong-there-will-always-be-scarcity

Free Book:

Lessons for the Young Economist: https://mises.org/library/lessons-young-economist