This is the first of a series of weekly posts that will explain the subject Americans are concerned about most, but understand least–Economics. You owe it to yourself to be better informed about this crucial topic. Commit just a few minutes each week to reading each post that builds on the previous ones.
Ahh! The miraculous planet earth, center of the universe from our perspective. This tiny sphere among billions of others has supported life for many millennia. Its inhabitants include its managers, human beings, who now number almost 7.5 billion. These human beings at the top of the intelligence scale of living things have been given the responsibility of stewards of earth’s resources for living. This responsibility is enabled by the principles of economics.
You can find many definitions of economics. My definition created for this blog is:
The science of managing and allocating limited resources for the best quality of life among competing users.
This very general definition assumes the consideration of production, distribution, and consumption of goods and services within a structured system of exchange. It also considers scarcity of resources and ecological regard. Let’s begin our journey through economics with a look at the most basic core of its concepts.
Whatever your understanding may be regarding the age of the earth, I’m sure you will agree that it is a very, very old planet. It started with a surface of water, then land appeared, then life in the form of plants and animals. Humans became the final and highest life form and were assigned as overseers of all the earth contained. Since the beginning, mankind has had all the resources necessary to sustain life and flourish. These resources recycle continuously with no replenishment. Every present atom of the earth has been here from the beginning. None of these particles that form matter have been added since the beginning of time. Atoms form molecules that serve temporarily in one capacity, then break down into atoms for another molecule of temporary capacity. What Solomon said is true, “There is nothing new under the sun.”
Everything that man and every other organism needs to survive and thrive has been provided by the closed biosphere earth since its formation. Man was not only given the responsibility to manage all of these resources, but also the ability to craft from them food, shelter, clothing, tools, weapons, energy, vehicles, ships, airplanes, and millions of other necessities and conveniences.
Since our sustenance is all provided, the next question is how should it all be allocated? In earlier, less civilized ages, allocation of resources was determined by sheer power–group power and individual power. However, some of the earliest archeological finds have provided evidence of some forms of bartering or trading one type of good for another. People began using a monetary system around 3,000 years ago. Whether trading or purchasing with money, the exchange of goods and services has always been based on their value.
Value is measured by demand and supply. The degree an item or service is needed or wanted (demand) helps determine its value. On the other hand, scarcity or shortage of an item or service (supply) also helps determine its value. A good or service that is greatly needed or wanted will have a higher value, and a good or service that is limited in availability will have a higher value. When many people want a good or service that is not available to all of them, the ones who want it most and have the most resources (trade or money) with which to get it will end up with it.
Another consideration in determining final value is the added value from production. In ancient times, iron ore was a valuable commodity due to its scarcity and the labor to mine it. But, forged iron from the ore was even more valuable due to the labor and equipment necessary to forge it. Then, an iron shield was much more valuable due to the craftsmanship needed to fashion it from the forged iron. Today, think of the value added to iron, glass, plastic, and fabric when they all are expertly fashioned into a new car.
So, everything you own, rent, borrow, or otherwise use in life has value added to many of earth’s provisions that have been there from the beginning of time. What you gave up to attain all of these goods and services was a factor of how badly you wanted them, how much went into making them, and how available they were.
Think about the last item you bought–some food, gasoline, a piece of clothing, etc. It was made of atoms that have been on earth from the beginning. The atoms made up its molecules that may have previously been molecules of something completely different. You gave up something precious (probably money) according to the item’s value based on how much you and others typically want that item. The value of the item also included the complexity of its production and the scarcity of it.
This first post in our tour of economics has been just to get us thinking about some of the basics. My next post will be a look at how you come to own things. Do you really “own” anything? You may be surprised. Watch for this next stop on our journey. “Follow” this blog so you won’t miss any of the weekly posts. Please share it with others you think would be interested in this series.