ECONOMICS.

This post is a description of my attempt at reading the book ‘Basic Economics’ by Thomas Sowell. I refer to the text of the Fifth Edition. Relevant parts of which are available on Google books HERE.

My comments are all about paragraphs 4 to 7 of “Chapter 1. What is Economics?”. First of all here is the text of those paragraphs. (I have put them into numbered sentences.)

Quote.

4.1 We can begin the process of understanding economics by first being clear as to what economics means.

4.2 To know what economics is, we must first know what an economy is.

4.3 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.

4.4 That is true as far as it goes, but it does not go far enough.

5.1 The Garden of Eden was a system for the production and distribution of goods and services, but it was not an economy, because everything was available in unlimited abundance.

5.2 Without scarcity, there is no need to economise - and therefore no economics.

5.3 A distinguished British economist named Lionel Robbins gave a classic definition of economics: “Economics is the study of the use of scarce resources which have alternative uses.”

6.1 What does “scarce” mean?

6.2 It means that what everybody wants adds up to more than there is.

6.3 This may seem like a simple thing, but its implications are often grossly misunderstood, even by highly educated people.

6.4 For example, a feature article in the ‘New York Times’ laid out the economic woes and worries of middle-class Americans - one of the most affluent groups of human beings ever to inhabit this planet.

6.5 Although this story included a picture of a middle-class American family in their own swimming pool, the main headline read: “The American Middle, Just Getting By.”

6.6 Other headings in the article included: “Wishes Deferred and Plans Unmet”, “Goals That Remain Just Out of Sight”, “Dogged Saving and Some Luxuries”.

7.1 In short, middle-class Americans’ desires exceed what they can comfortably afford, even though what they already have would be considered unbelievable prosperity by people in many other countries around the world - or even by earlier generations of Americans.

7.2 Yet both they and the reporter regarded them as “just getting by” and a Harvard sociologist was quoted as saying “how budget-constrained these people really are.”

7.3 But it is not something as man-made as a budget which constraints them.

7.4 Reality constrains them.

7.5 There has never been enough to satisfy everyone completely.

7.6 That is the real constraint.

7.7 That is what scarcity means.

End quote.

§1.

The text uses the phrase “a system for the production and distribution of the goods and services we use in everyday life”.

(For convenience I will sometimes state this in a shorter form: ‘a system for production and distribution’.)

I feel like the text ought to have made it clearer what it means by this. So I clarify it for myself as follows. I take ‘a system for production and distribution’ to mean some kind of a system which decides things like: who does what work (this is the production) and how (and which) people get the results of that work (this is the distribution).

So I can imagine different kinds of system, by which I mean different ways that production and distribution might happen. The standard free market economy is one way. But there may be others.

§2.

The text is saying that “a system for the production and distribution of the goods and services we use in everyday life” is not the correct definition of what an economy is and that any definition must also include that there is scarcity. But I don’t understand this point. I don’t understand why ‘a system for production and distribution’ is not fine on its own as a definition of what an economy is.

Here ‘scarcity’ is the opposite of ‘unlimited abundance’. The text tries to explain what it means by ‘unlimited abundance’ by referring to the Garden of Eden. I feel that it would have been better if the text had spelled out what ‘unlimited abundance’ was rather than referring to the Garden of Eden which is a not exactly a very ‘scientific’ reference.

I assume ‘unlimited abundance’ (where ‘scarcity’ is the opposite of that) is where things just magically appear as soon as you want them. There’s zero effort involved in you getting something when you want it. (I imagine that in the Garden of Eden people still needed to do some work to get stuff. For example they had to walk up to a tree and get fruit off it.)

§3.

For a while I thought that what the text means is something like that the definition of an economy is that it is ‘a system for production and distribution’ and that this is something that is made necessary by scarcity. In other words: it’s not something that would happen otherwise. Meaning that if you have 'a system for production and distribution' then you will also have scarcity.

All of which makes sense. Because if we can magically get stuff as soon as we want it then there is no need to have some system which determines who does what work and who gets what. Because everyone does no work and everyone gets whatever they want.

But then I note that the text says (5.1) “The Garden of Eden was a system for the production and distribution of goods and services, but it was not an economy, because everything was available in unlimited abundance.” Which is saying that The Garden of Eden was a state where there was ‘a system for production and distribution’ but there was unlimited abundance, ie no scarcity. So this means it’s not true that ‘a system for production and distribution’ is something that is made necessary by scarcity. All of which is contrary to what I say I thought at the start of this section.

So all this means the text isn’t saying ‘a system for production and distribution’ is made necessary by scarcity. But rather that an economy (which is not the same as ‘a system of production and distribution’) is made necessary by scarcity. The text is making a distinction between an economy and a ‘system for production and distribution’ but I don’t understand what this distinction is.

Going back I realise that that this means that the whole Garden of Eden reference is worse than I thought. I’m thinking: what does the text mean by saying that there was a system for production and distribution in the Garden of Eden? I start to go and read Genesis to see if that will help but that’s just silly so I don’t.

§4.

Note that if the text WAS saying that ‘a system for production and distribution’ is made necessary by scarcity. Then I’m thinking: isn’t that just obvious? It’s not a particularly insightful thing to say about economics.

The text gives a quote from Lionel Robbins. I have heard of this idea of “scarce resources with alternative uses” before. I always thought Time to be a good example of this. If I have two hours then this is a finite (scarce) resource. I have to choose between alternatives of how to spend that time. I can watch a movie. Or make a trip to the beach. Where each of these takes two hours. So that means I can’t do both. I have to decide what to do.

So this means that there will always be scarcity. Because Time is always scarce. (Like the saying “there’s only 24 hours in a day”). Which again means that saying scarcity is an important part of what an economy is not very interesting.

But I feel as if this example of Time I have come up with does show that I understand the idea of “scarce resources which have alternative uses”. So I’m not entirely on the wrong track.

Sentence 5.2 says: “Without scarcity, there is no need to economise”. Based on the sentences around it I think the word ‘economise’ means “choosing between different ways of using some resource”. But, on the other hand, the standard meaning of the word ‘economise’ is “to cut back on spending and consumption”. These two aren’t the same. So I am confused about which one this paragraph is about.

§5.

Then in paragraphs 6 and 7 the text says that the implications of scarcity are often misunderstood. I don’t understand what it means by saying this. What ‘implications’? Reading the rest of paragraph 6 and paragraph 7 it seems like the “its implications are often grossly misunderstood” should read “what this really means is often grossly misunderstood”. Because both the paragraphs are all about saying what scarcity is, what the word really means.

But they aren’t saying anything that isn’t obvious are they? They just say that scarcity is about there not being enough in reality to satisfy human wants. That’s just obvious isn’t it?

[November 2020]