Arnold Kling  

Is Economics All About Scarcity?

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Michael Mandel says no.



  • Proposed definition: Economics is the study of the functioning--and malfunctioning--of the economy, with the aim of improving living standards
  • My justification for a different definition is that there are big chunks of the economy where scarcity is not important, in any but a formal sense. If anything we seem to have an abundance of food and manufactured goods, and the cost of moving and manipulating information has fallen very very sharply. I'd also like to get in the sense that economics has a purpose.


    'PGL' is not amused.

    I just lost it when I read this and here was my reply:

  • I keep saying that the foundation of economics is the Law of Scarcity and now Mandel says forgot all of that.


  • I am two-handed on this issue. On the one hand, just because food, say, has become more abundant does not mean that we can ignore scarcity. At any moment in time, for a given state of know-how, the conventional definition of economics as dealing with the allocation of scarce resources among competing ends applies.

    On the other hand, some of the most interesting economic observations concern relative abundance. Look at our standard of living compared to 100 years ago. Look at South Korea compared with North Korea. Robert Lucas famously said that "The consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them it is hard to think of anything else."

    The standard economics textbook does not treat the issues of "relative abundance" very well. I think that there is a market opportunity for a book that can fix that.


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    CATEGORIES: Economic Education



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    The author at William J. Polley in a related article titled Scarcity: Part of the definition of economics or not? writes:
      Given that this is the first week of a new semester here, I thought this would be appropriate. Michael Mandel doesn't like using the word scarcity in the definition of economics. He offers an alternative: Proposed definition: Economics is the... [Tracked on January 18, 2007 5:05 PM]
    COMMENTS (31 to date)
    KipEsquire writes:

    Just because you can feed the world doesn't mean you can do it with a single flower pot.

    Just because everyone can eat doesn't mean that everyone can eat at Le Cirque this Saturday at 8:15.

    So scarcity, even for "non-scarce" goods, is still very much relevant, thank you very much.

    dWj writes:

    It was remarked somewhere not too long ago that one of the crucial lessons economists teach non-economists is that everything involves trade-offs. "Trade-offs" may capture approximately the same thing as "scarcity"; even in societies of abundance we have to choose between food and other goods.

    In any case, a definition of "economics" that involves "the economy" isn't terribly illuminating, and, to the extent that it is, is likely to be too narrow. Unless everything Gary Becker ever studied is comprised by "the economy". (I believe everything Gary Becker ever studied did involve trade-offs.)

    david writes:

    It is true that food is not a scarce commidity, but it would be very scarce with me if I did regularly buy it. Likewise, even when there is a labor surplus, an employer who stops paying his employees will find that workers are scarce in his business. So scarcity (or the prospect of it), even of goods which are not themselves scarce in the economy as a whole, does drive economic activity.

    The key point is that people must engage in economic activity to avoid scarcity, not that scarcity continually plagues those who do engage in economic activity.

    TGGP writes:

    I like Thomas Sowell's definition of economics: The analysis of how finite resources are used to meet infinite wants. I also like that of Mises: The science of human action (I know, that's a bit overly ambitious). A lazy definition is "What economists do".

    a-town writes:

    In my first day of my Microeconomics class I was told that the economy had 2 problems. The first one is scarce resources and the other unlimited wants. The textbook also said "Scarcity limits our options and necessitates that we make choices. Because we can't have it all, we must decide what we will have, and what we must forgo".(McConell Brue)I think that when Mandel says "there are big chunks of the economy where scarcity is not important" is ridiculous. Everyone knows that human resources are limited.

    Mike writes:

    I've always engaged students with two things.

    First, suppose there is a heaven - would there be scarcity up there and would we need economists?

    Second, I am not so sure it is necessary to use the standard Lionel Robbins definition of economics in all cases - I have no problem with his definition, but I like to think that economics is not unlike many social sciences in that we are trying to address the question of "what is the impact of incentives on human behavior?" This removes the notion of scarcity from a definition - not that scarcity isn't important, but it always helped my students think about problems like relative abundance more easily.

    Mike Mandel writes:

    Arnold,

    Thanks for the Lucas quote. That's the sort of thought that was bouncing around the back of my mind.

    KSH writes:

    I always thought that economics was the study of human behavior. As the variety of topics this blog touches on, even if there was an abundance of every material good, we would still be talking about competition for social status.

    Scarcity is the milieu in which human behaviour operates. And there are things man desires that will always be scarce, top of the list being time and the perfect mate.

    Fundamentalist writes:

    I second TGGP's nomination!

    liberty writes:

    "Economics is the study of the functioning-–and malfunctioning--of the economy" doesn't tell you anything about what method or laws can inform this question. Scarcity informs the functioning of economies of any kind (socialist or market).

    Particular indistries that have abundance in their current form does not negate the fundamental law of scarcity that determines the possibilities for the functioning of the economy (and even the individual industry).

    Agriculture is abundant, but it was not under socialism. Scarcity is why you cannot simply plan an economy promising unlimited hours of labor for factories as they need them, unlimited goods in the store so that demand need not be known, why you can't tax people as much as you like in order to provide the programs that you would like to offer; every economic question about trade, welfare, private versus public programs, all allocation questions and all policy that may inform whether an economy "functions" begins with the problem of scarcity. That is why it is part of the core definition of economics. To forget that is to wash away the foundations of the science.

    Matt writes:

    Economics is the study of human action. This is the definition, however encompassing it may be. Scarcity is a big factor of human action. But it's still just a factor.

    jimbo writes:

    reference,please:george gilder: the end of scarcity,i believe.

    Randy writes:

    The proposed definition seeks to unite the social and market actors. Personally, I would like to see a clearer line drawn between them. The market actors produce wealth. The social actors redistribute wealth. The market actors work within the concept of scarcity. The social actors try to get around it.

    SheetWise writes:

    It's easy to believe that scarcity is not important, when you have fallen victim to the illusion of abundance.

    It's all based on perspective. And I'm not sure the term "relative abundance" adds much to the discussion, any more than "relative scarcity" -- neither term is static, but only one is real.

    From the US perspective, all food is abundant. But that's only because we're wealthy enough that we can generally get as much of any foodstuff that we desire. The abundance is an illusion. We have been rich long enough for producers to anticipate and meet our wants, but they're performing that service "just in time" to the best of their ability. It wouldn't take much of an interruption in the process of delivering food for scarcity to become obvious. There aren't warehouses full of our daily wants to last more than a few days.

    What is abundance? Sex is free -- yet, unless you want to go it alone, it requires some cooperation. That's too high of a price for many people -- and so what is virtually free becomes scarce. Or as Michael Mandel might put it, that's one of the "big chunks of the economy where scarcity is not important, in any but a formal sense."

    Oystein Sjolie writes:

    Food is scarce, even in the richest societies. Or why does it cost money, money that can be used to buy other goods? That very few people in the US are hungry does not mean that food is abundant the same way daylight is abundant. It only means that most people command enough resources to cover their basic need of calories.

    Ryan Fazio writes:

    i agree that the 'scarcity' definition of economics is erroneous, however i hold to a different definition. As outlined by George Reisman: "economics is the study of the production of wealth under a system of division of labor".

    -wealth must be emphasized because that is the ultimate end to which we study economics--how to create as wealthy an outcome for society as possible.

    -wealth and resources must not be confused as they are in the traditional definition. wealth is a material good produced by man for the purpose of appeasing his needs. resources are simply...matter. resources have the potential to be wealth--of use to man--but they require an exact characteristic to make them so: human labor. the application of man's mind to matter in order to manipulate it for his purpose is what makes resources into wealth. and that is the purpose of economics--not allocating resources which have no inherent value, but rather producing wealth--which requires human action in order to serve our needs.
    essentially: wealth is valuable by nature; resources have no inherent value. wealth need be produced; resources are already there.

    -i include division of labor in the definition because without division of labor there is no need for economics whose job is to study how to optimize output. w/ out division of labor there is no potential to substantial raise production (unless labor is divided).

    -resources for all intensive purposes must be considered to be in infinite supply (ie. law of diminishing returns). The earth itself nothing but a tightly compounded ball of resources—so in that sense we are not lacking resources—there is such a large amount there for the taking that running out of it all should not be a worry. what we do lack however is human labor and human intelligence—and that what need be studied. How to best apply/allocate the human mind—the only truly limited resource—to the worlds resouces in order to produce the optimal outcome.

    Ps. Food is wealth not a resource. It is the application of the human mind to resources that make our consumption of food possible. We must think and act to make resources proper to eat.

    Andrew writes:

    Economist Paul Heyne always used to say the central question of economics isn't scarcity, but coordination. How do the amazing things around us get done? Surely this is obvious from reading Leonard Read?

    Randy writes:

    Ryan - Well said.

    Half Sigma writes:

    Economics is a subset of sociology. Sociology studies the behavior of humans in society. Economics limits that to how humans allocate resources.

    Randy writes:

    Half Sigma,

    Robert Pirsig (Zen and the Art of Motorcycle Maintenance) would tell you that it depends on how you apply the scalpel. It could be as easily said that Sociology and Economics are coequal methods of viewing reality. But it is interesting that academics tend to make the cut just as you have stated. It is precisely this bias that I oppose.

    Randy writes:

    P.S. Half Sigma,

    What is the point of groups if not to further our ability to acquire resources? We are not herd animals by instinct. We gather for a reason.

    Snark writes:

    I fail to see how any meaningful discussion of what economics is all about could take place without mentioning utility. Scarcity represents little more than a constraint on the much larger and more important issue of utility, which every rational consumer seeks to maximize. Utility, in my estimation, is the most accurate measure of the satisfaction gained by an individual or society in the pursuit of life, liberty, and…Gross National Happiness?

    Ricky writes:

    I don't understand how you can say scarcity is not important in some parts of economics. Food is a resource, and there are always limited resources with unlimited wants. With any formula such as this there will always be scarcity. Also, if you are trying to move this "abundance of food and manufactured goods" you must find more resources (such as capital and labor) and according to you there is no point at which capital and labor becomes scarce.

    Bill Woolsey writes:

    In economics, scarce doesn't mean "rare," but rather less that an amount that would satisfy any goal that anyone could achieve with something. Using a demand curve, a good isn't scarce if the the equilibrium price is less than or equal to zero.

    It is probably true that many goods could be produced in a quantity sufficient so that the equilibrium price would be equal to zero. However, it is not all goods can be produced in such quantities. So, making one or a few goods "free" (not scarce) would result in reductions in the productions of other, more valuable goods.

    While thinking about economic growth is useful, such growth is only desirable if scarcity exists.

    In fact, one of the problems with laymen (including economics students) is a notion that economic growth destroys jobs. We only need so many goods. If we produce too much, there won't be jobs for people.....

    Yes, food is so abundant, we need to think about ways to get farmers to produce less. Technological innovations in food production are bad...

    What are you thinking

    greg writes:

    As long as humanity continues to desire more than he has and more than that of his neighbor, then the answer to the question "is economics all about scarcity?" is yes. Unlimited human wants in such a rapidly advancing world no doubt put tremendous pressure on a variety of resources. The four that i am referring to are 1) land- including timber, water, oil, coil, wheat, etc. 2) labor- including a scarcity of educated workers 3) capital-including all goods used in production of a finished product, not just money and 4) entrepreneurship- referring to a manager/owners opportunity cost of the next best alternative. And although we may never run out of oil as prices grow to such amounts that would make it unfeasible to extract the remaining thousands or millions of barrells, human resources wil always be scarce, atleast until we are taken over by moe efficient robots in the work place.

    Matt G writes:

    Is scarcity the answer to the economics question? In a way I think so, however, I just cannot get away from the fact that there are so many different pieces that complete the puzzle of economics. Yes, scarcity is a major part of this trade, largely due to the unlimited wants us as a nation and world posses. Yet must we understand that factors such as utility etc.. play a major role in economics. Despite all my babble, my College Microeconomics book states the definition of economics as: "The social science concerned with the efficient use of SCARCE resources to achieve the maximum satisfaction of economic wants" (McConnell/Brue) So is scarcity the answer to economics? In a way, yes, for modern society's obsession with more than what we need to live(air, water, food, clothing, and shelter)reflects the importance of our inability to fullfil those wants.

    Candra writes:

    On my first day of class my professor told me there were two parts of economics; scarce resources and unlimited wants. The book told me the definition was "the social science concerned with the efficient use of scarce resources to achieve the maximum satisfaction of economic wants.” (McConnel Brue "Microeconomics") Both of those definitions made sense to me. Mandel thinks that scarcity should not be included in the definition. However, I do disagree. He used food as an example of a resource that wasn't scarce. Maybe it is not scarce to him or me or you, but I'm sure there are PLENTY of people that food is a scarce resource for. (third world countries, the homeless...) I think that scarcity should stay in the definition because there will always be a deficit in something, whether it be resources, labor, capital, or entrepreneurship. I think that no matter what, one of those sources will always be lacking.

    arlan writes:

    The true definition of economics always includes the words "scarce" and "unlimited wants" according to my economics professor. TINSTAAFL helps further explain this defintion. There are always costs because resources are scarce. Nothing is free - nothing comes without a cost to someone. If a company makes a promotion by giving away a "free" product to a customer, it is costing that company money that they are hoping to get back through the sale of other products they sell. The entire "economic problem" includes how to allocate scarce resources with peoples' unlimited wants. It may seem like there is an abundance of food or manufactured goods, but in reality these goods are limited. The foundation of econmoics is the scarcity of resources.

    Jessica writes:

    I do not believe economics is all about scarcity. Some of it is actually focused on the amount that we have and how largely it will grow. Scarcity is not having enough to provide for. The way our economy is going and the economist that we are getting everyday plays a major factor in where our money is going and how we should spend it.

    Andres writes:

    Economics is the study of the functioning and malfunctioning of the economy so I agree with the article becasue the scarcity is not important as soon as you have exactly the stuff that you need for yours busines. In my opinion scarcity will be better than having an abundance because it will acupate a lot of space.

    cnj writes:

    Economics depends on scarcity because without it we would have all that we want and soon our resources would be gone. As defined by Mconnell, Brue economics is “the social science dealing with the use of scarce resources to obtain the maximum satisfaction of society’s virtually unlimited wants.” With scarcity comes choice, we must choose weather to go without what we want or to give in. Yet, the choice is already made for us because of the economic problem “the choices necessitated because society’s economic wants for goods and services are unlimited but the resources available to satisfy theses wants are limited” (Mconnell, Brue). These choices make us who we are and define us as human. We can make our economy strong or weak by whom we chose to put in office because they chose for us. But our own personal choices also matter for our future and the future of our children, we have to know the limits of our recourses to sustain us but more important is what we leave for the next generation.

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