Many people think economics is all about money. Money certainly is involved, but the primary concern of economics is how certain kinds of decisions are made.
Definition: Economics is a science that studies how people, acting individually and in groups, decide to allocate and use scarce resources to satisfy their wants.
A resource is deemed to be scarce whenever wants for the resource exceed the amount of the resource that is available.
There are three basic types of economic decisions which need to be made:
- What goods and services are to be produced?
- How are they to be produced?
- For whom are they to be produced?
There are only two fundamentally different kinds of economies based upon how these decisions are made:
- Free Market Economy – In a free market economy, people are left alone and free to make these decisions for themselves in any way they may see fit. It is assumed that people will always make decisions based upon their rational self-interest when free to do so. This is a very solid assumption since examples of people intentionally making decisions contrary to their rational self-interest are exceedingly rare! Note that decision-making power is distributed and diffuse.
- Command Economy – In a command economy, most or substantially all of these decisions are made by some central authority. There are many command economy variations such as socialism, communism, fascism and dictatorship. No matter what the “sales pitch” used to justify the use of force, all command economies end up with power concentrated in a small group which uses force to make at least some important economic (and other) decisions.
It should be noted that in a pure free market economic system everything is voluntary. It is the only economic system that functions entirely without the use of any force, and therefore, comports with the libertarian non-aggression principle.
There are no pure command economies or pure free market economies in the real world. All actual operating economies are Mixed Economies. Each occupies some spot on the spectrum between predominantly free toward one end to predominantly command toward the other.
As cited in the first lesson, free market economies are dynamic and prolific creators of wealth, while command economies definitely are not. In spite of this, economies have a tendency to drift toward the command end of the spectrum. The cause of the drift is the application of force to the economy through increasing government meddling. When command economies collapse, a free(er) version may eventually replace it. More rarely, an intentional reset toward the free end may be carried out in order to rejuvenate wealth production.
This course focuses on understanding free markets with the hope of arresting the drift of the U.S. economy toward a less free and less productive command economy. In the interest of simplicity and brevity, some of the finer and/or more advanced economic concepts have been omitted. Interested students certainly are encouraged to also take a good Microeconomics 101 course.
Finally, it should be explained that the science of economics has two main branches. The first is called Microeconomics. It deals with the basic and immutable laws of economics. The second, is called Macroeconomics. It attempts to understand the aspects and behaviors of an entire economic system. As we will learn, an entire economic system is an amazingly complex entity with many moving parts, almost all of which interact with each other in various ways and those interactions change with time, conditions and technology.
Substantially all economists agree with the basic tenets of microeconomics. However, within the field of macroeconomics, conflicting opinions and theories abound. It is a land of computer models (which can be tweaked to confirm hypotheses) and maybe even Ouija boards and astrologers. The student is warned to view macroeconomic pronouncements with a healthy dose of caution and skepticism.