Choosing a starting point for a brief study of economics can be quite the daunting task. Economics was not the creation of one mind but rather many minds over many centuries so there are literally hundreds of places one could begin. But a good beginning is nonetheless absolutely necessary because if you don’t understand where the foundations of economics begin then you are liable to build your understanding of it on many of the same falsehoods that even some professional economists have made their careers. In an effort to break down these foundations into teachable concepts, I have decided that the beginning of time is probably the best place to start.
If you’ve read it, the Bible records a time when man had all that he needed[1], there was no starvation, disease, poverty, pain, - and especially no taxes. The first man had only a garden and his beautiful wife to occupy his time. This place is referred to as Eden: A time when economics did not exist. In this peaceful place, there was nothing initially needed to satisfy the needs of the first man and woman, everything was very good - but as we already know, it clearly didn’t stay that way. Genesis chapter three records that the man and woman were tempted to disobey God, and when they did, they were cursed and expelled from Eden. Thus pain, scarcity, poverty and death entered the world and thus was the birth of economics[2] - the science which examines the production and distribution of limited goods in a world of unceasing demands.
Whether or not you believe in this Biblical story is irrelevant. I’m simply using it to illustrate the point that since the dawn of time man has tried relentlessly and emphatically to return to (or achieve) a state where his needs and desires are satisfied. We are always working toward this goal in some regard and its accomplishment comes about through our actions. Economics begins with Human action: We seek to economize limited resources in order to achieve particular goals. This action occurs because each of us wishes to satisfy our needs or alleviate our discomfort - we are constantly striving to return to time when economics does not need to exist. We are always striving to return to Eden.
Personally, this is a very simple place to start, economics is about individuals satisfying desires through production and exchange. But socially, economics then explodes into the vast study of how societies do the very same thing - striving toward their return to Eden. You’d think some society would have eventually achieved Eden by now, but history has proven that economics is a complicated science – because it involves humans – and humans are very flawed creatures. On roads paved with endless good intentions, we have repeatedly tried and failed to create an Eden of our own. We continue to lead ourselves down paths that yielded imperfect or even horrid, results: there is still war, poverty, racism and disease.
Nonetheless, we continue striving toward improving our lives and our world through our actions. You likewise have your own ideas that you believe will help usher in Eden, goals like fighting inequality, racism, world hunger, saving the dolphins and ensuring that the planet doesn’t melt. These are simply needs that humans seek to satisfy, whether they are on a large scale or an individual scale (like making a sandwich), economics encompasses all these things. Of course included in this are the more familiar aspects of business (production, time, exchange, prices, etc.) that you are familiar with, but at its core, economics goes beyond this single "business" label to encompass all human action. All of these actions make up who we are as a society which makes up what is commonly known as our economy.
There is a great deal that makes up this collection of individual tastes, values and exchanges known as an economy, but we will touch upon that later. Instead the focus of this section is to highlight the apparent challenge we face when we attempt to create that better world or society. The problem for this challenge begins with our individuality. You and I would likely agree on our desire to achieve a better world but we would both quickly realize that we dont share the same vision for how such a world should come about. No society has ever managed to create a utopian civilization and in fact, all those who have specifically tried to create the perfect society have instead only created abject poverty.
The question is why?
The long answer will require a good amount of digging but the short answer is that any society built upon the ignorance of economics and Human action is doomed to economic failure and thus destruction. Striving toward a perfect world has always failed because those who have created such societies pulled their inspiration from sources devoid of sound economics. Economist Ludwig Von Mises understood this point when he stated that;
“The evaluation of any economic system must be made by careful analysis of its effects upon the welfare of people, not by an appeal to an arbitrary concept of justice which neglects to take these effects into full account.”[3]
What he meant was that designing a prosperous society based on something other than sound economic principles is to doom that design to failure, regardless of the intentions of that designer. It doesn’t matter how driven we are or how much we care, ignoring sound economics always leads to failure. The same can be said of any task, like baking a cake without sugar or building a condominium on the sand - failure lies in the failure to understand the basic foundations. Today, we frequently demonstrate this kind failure by remaining ignorant of economics, assuming that some other individual (likely a politician) possess the necessary intelligence and/or moral character to design this perfect world for us. In truth, the failure of creating a perfect world is this direct result of believing that a Perfect World is possible in the first place. In an effort to achieve such a fantasy, nation builders have ignored several crucial aspects of economic reality (economic foundation).
Namely that (but not necessarily limited to);
(1) That Eden is subjective: (Subjective Value) Each of us performs different actions for different reasons to achieve different goals - because we hold different values regarding the means to satisfy our preferences. Therefore there can be no ‘one size fits all’ system that perfectly coordinates millions of different individual values into a system that will constitute a perfect utopia. Economics therefore begins with the actions of the individual.
(2) That Man is not perfectly rational: (Human Action) In acting, because those actions are still based on individual subjective values, we cannot be molded or taught to think in a manner that is arbitrarily declared as perfectly rational. We are individuals, and we cannot become a society the perfectly shares the same values toward acting. Each of us seek to put the least amount of effort into getting what we want (we have an aversion to laborious or painful activity).
(3) That there are not enough resources on the Earth to satisfy everyone’s needs and desires. (Supply & Demand) Supply and Demand are inescapable forces of economics and direct all economic action and apart from which no productive exchanges could take place.
The problem with Eden is that it has a very powerful appeal. How many of us would pass up a chance for a perfect world or even a perfect world for our children? By simply accepting the notion that a perfect world is possible (an arbitrary ideal to begin with) the trap is already sprung because it then convinces you that no cost will be too high in order to achieve your paradise. Economic disaster occurs because our plans for reaching Eden have historically involved forcing societies to conform to some arbitrarily determined ideal that demands that people give up their wealth, liberty and wellbeing - all for the notion that doing so would will Eden. That by making everyone equally poor, there would be abundant prosperity. Written this way, you would think that no one would agree to such foolish ideas but history has already shown us that millions of people have fallen prey to the idea of a perfect world numerous times. These so-called “advanced” ideas always sound great on paper, but they never work because for all their moral sentiment and idealistic appeal, they still ignore economics.
Communism is one such attractive idea which appears to be morally appealing on the surface but ultimately fails because it has no sound economic foundation. One of the most famous proponents of Communism, Carl Marx did study and develop economic theory, but he writings revealed that not only were his economic insights flawed, they were premised on false notions regarding the nature and structure of Capital, entrepreneurship and especially the determination of value.
Aside from completely ignoring the issue of scarce resources, Communists believe that prosperity will rise up naturally as the bourgeoisie (the wealthy) are removed from society. Communists believe that they will then arbitrarily decide prices for all goods and services, decide what resources are used for what economic purposes and then decide who gets to use those resources. Even a basic study of economics reveals how daunting such a declaration can be. It is akin to claiming that you will organize the sands of a beach in order to create a better beach, all while the tide continues to roll in and out. Economic laws (the tide in this case) become meaningless as those in charge create their perfectly classless society, forcing the majority of the population to conform to a perfectly equal economic state (and subsequently by exterminating those who will not conform). This paradise pays little to no regard to even the economic (or human) cost as human lives become the eggs that must be broken in order to cook up the “perfect omelet”.
One of the final goals of Communism is the eventual elimination of the government, an act which will only occur once all society is perfectly equal. Only then will the government relinquish its control over society and leave the people to peacefully live their own perfectly equal lives. You probably have never heard of this final aspect of Communism due to its sheer impossibility. Such a final state is not only impossible to administrate, it is impossible to comprehend. As soon as one individual was found to have more shoes or possess happier thoughts than their friends, wouldn’t the Communist government need to return and start the entire process all over again? Far too often I hear Americans claim that Communism could still work today, even though it has produced nothing except poverty and destruction throughout history. Even on paper, any system that ignores economics is doomed to failure.
It is vitally important that you never fall prey the idea of a perfect world because at its very core, this idea is completely subjective. You and I will never have a perfect world because we don’t even share the same vision of what a perfect world is suppose to be. Now, the idea of a perfect world may be built on compassion and good intentions but it is unfortunately also devoid of economics. The purpose of economics is not the return to Eden but rather it is a science that reveals to us the results of our actions. Economics reveals to us what enables individuals to produce and distribute resources in the most efficient manner so that wealth and prosperity can occur. It reveals to us tools that allow for the creation of wealth and it also reveals which fallacies cripple progress and produce waste.[4]
This brings us back to our main point: Regardless of our motives or intents, our personal or moral convictions cannot make a fallacious economic system work. A group of Christian Socialists will fail just the same as a group of Post-Modern or Jewish Socialists – because the failure lies in Socialisms inability to calculate prices, one of the most essential aspects of an economy, it has nothing to do with the fact that the people hold one worldview or another.
We all may have the best of intentions when planning out our societies, but anyone who thinks that forced equality (financially, educationally, morally, physically, intellectually, and/or emotionally) is both viable and attainable is unfortunately not thinking about the realities of economics. There simply are not enough physical resources in the world to allow us each to live the life of Hugh Hefner, lounging around all day in our pajamas inside a large mansion full of beautiful women who can’t read.
In conclusion, it is my hope that this introduction helps you learn the distinction between a better world and your idea of a perfect one. The perfect Eden is not possible because there are simply not enough resources to satisfy everyone’s demands, but it is for that very reason that economics exists: to determine the most efficient means of producing and allocating scarce resources so that economic progress can occur. Without economic progress, we will never be able to produce new technology, more food, new medicine, and clean energy, nor will we be able to produce more of those goods and services cheaply enough so that the poorest can afford them. You must remember that Eden and prosperity are two completely different concepts that no individual should ever confuse. Economic progress means we truly can live rich lives, free from starvation, disease, war and poverty[5]. This doesn’t mean everyone will get everything they want, nor does it mean everyone will be equal, but it does mean that sound economics gives us all a chance to live a better life today than those who lived before us, and that those after us have a chance to live better than we do today.
[1] Granted, there was no Sunny Delight or Call of Duty: Modern Warfare (that we know of) in Eden, but when you consider the alternatives of the beautiful outdoors, a naked spouse, and lots of time, is there really any argument to be made against this paradise?
[2] What is interesting is that you will find that the first transaction in history occurring at exactly the same hour that economics was born into our world. God declared His purchase of man’s disobedience (The first credit purchase, you could say) to be paid in full in the future.
[3] Theory and History by Ludwig Von Mises. Pg 346.
[4] I must point out that the goal of sound economics is not necessarily utilitarian, meaning that the goal (in this sense) is to overcome poverty at the best cost – not any or all costs – as is the prescription of fallacious economic theories, where the deaths of millions of people become the equivalent of cracked eggs, a necessary cost for the creation of a perfect utopia. Genocide is clearly not the key to paradise.
[5] You will notice I did not say you can lives free from jealously, offence, inequality, sin, dissatisfaction, theft, fraud or misunderstanding, as the removal of these elements often undergird the utopian ideal.
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