Sunday, January 20, 2013


Economics does not seem like the kind of thing that was invented by one person. It seems like it probably came together slowly as customs became established and slowly turned into rules.  Today it is an immensely elaborate and complex system. Many of the most interesting features are relatively modern. Transportation certainly began with a man or a woman simply walking between tribal settlements, but now involves planes, trains and ships of immense size and complexity. Although it began hundreds of years ago, the whole banking structure of trade in just the past one hundred years has evolved into numerous complex currency and interest rate swaps and loans of millions of dollars. Corporations begun in Roman times to share the rewards of collecting taxes are now multi-national organizations with factories across the world producing everything from Barbie dolls to industrial acids that can cut through metal. The intricate metallic machinery and robots involved in the manufacturing process seem to be the inventions of Hollywood.

Are we on the right path? Do you think this was the direction of the tribal councils of Africa who began this process? What were they trying to achieve? It seems like the motive would be quite basic.  One tribe has a surplus of fish, but would like to get more berries from their neighbor who has a large berry patch on their tribal grounds. It is easy to visualize this process evolving into a structure needing a system of weights and measures and then money, next more advanced techniques for growing crops, then improvements in tools, organizations to produce manufactured products and along the way a system to make more money. Bottom line, it does seem reasonable to assume our economic system evolved as a trading mechanism.

The reason I asked this question is the simple feature of our humanness that makes us more efficient and focused when we know what direction to go in to reach our goals.  No economics book I know about declares the foundation of economics is trade. In fact, almost all economics’ textbooks start by explaining economics is about allocating scarce resources, i.e., deciding who gets a fish and how often. I must disagree with the esteemed academic community. I think this process of deciding how the tribal bounty is divided is a political decision.

The fisherman who caught the fish certainly feels the fish belong to him and that he will decide who gets what.  It requires some political might to wrestle control of the fish away from the fisherman.  I cannot imagine a fisherman in a primitive society giving up his fish to the tribal leadership to be redistributed without some political force in play. It is also not as clear how that process leads to the creation of money or huge trading vessels. Therefore, I believe scarcity leads not to the creation of Economics, but to the creation of Politics.

Economics does not originate with scarcity, but the need to have an efficient and effective trading system.

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