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Should 'Scarcity' Be Part of the Definition of Economics?


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January 16, 2007

Should 'Scarcity' Be Part of the Definition of Economics?

Michael Mandel

Every economics textbook seems to have a definition of economics right in the first chapter. And all the definitions seem to have something to do with scarcity. Here are some real examples:

Economics is the study of choices consumers, business managers, and government offical make to attain their goals, given their scarce resources.

Economics is the study of how people make choices under conditions of scarcity and the results of those choices for society.

Economics is the study of how society manages its scarce resources

Now, I'm doing an economics textbook for McGraw-Hill, and I'm thinking about using a different definition of economics, which doesn't depend on scarcity.

Proposed definition: Economics is the study of the functioning-??nd 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.

Any thoughts?

03:00 PM

Teaching

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What happened to:

Economics: The study of the production, distribution and consumption of goods and services.

The law of supply and demand answers any "scarcity" issues.

Redefinitions of words are usually the result of efforts to manipulate the subject or the individuals who are the effect of that subject.

Posted by: Chris Dalby at January 16, 2007 04:05 PM

Perhaps scarcity isn't as big a deal anymore but I think the point that those definitions try to get across is that there are always constraints. One has to figure out the best way to do something based on some limited resources. If all resources were abundant to every person, they would be worthless and one wouldn't have an economy. Perhaps you could replace the word 'scarcity' with 'limited resources' or 'constraints'. As to your proposed definition, aren't you just passing the buck to the definition of the word 'economy'? You should probably put whatever you were going to use to define 'economy' in 'economics' instead. Also, I don't like your usage of the goal of improving living standards. That is one use of economics but not what everybody uses it for. Economics is such a big subject that it is difficult to pin down to one sentence. Why not make it a paragraph? Give yourself some breathing room.

Posted by: Ajay at January 16, 2007 04:45 PM

Economics is the study of choices consumers, business managers, and government offical make to attain their goals, given their scarce resources.

The next "redefinition" they will use will be something along the lines of "Economics is the study of the MORAL choices consumers........"

Posted by: Chris Dalby at January 16, 2007 04:47 PM

I dislike your definition for several reasons, not the least of which is that it is too vague (what do you mean by "the economy?") and also normative. Certain people certainly don't study economics with an aim of improving living standards. In fact, I think that many economists starting with Adam Smith might find this motivation inherently suspect.

Economics as a discipline simply wouldn't exist without scarcity. Consumers and producers wouldn't be forced to make decisions about how they spend their time and money, prices wouldn't matter, and the most fundamental question of economics -- how resources are allocated -- would be irrelevant. Given that the entire field is built upon the existence of scarcity, to leave that out of the definition would be irresponsible.

Posted by: Joe at January 16, 2007 05:18 PM

Re: food and manufactured goods, what there is a scarcity of is supply-chain management and ability to forecast demand. Plus, they do remain scarce in large parts of the world (esp. goods). Also, I think that many economists don't really care about improving living standards but see their role as dispassionate observers -- just as physicists don't see their role as improving the laws of nature.

Posted by: Andy at January 16, 2007 05:39 PM

No matter how much of something there seems to be, all things are essentially scarce. I think scarcity is a key component of the definition.

Posted by: M.T. Paige at January 16, 2007 09:06 PM

Perhaps you could replace the word "scarce" with "limited"? Here is a suggestion that combines your definition with the older ones, and with a little grammatical restructuring (I hate overuse of gerunds):

"Economics is the study of the function--and malfunction--of an economy, and how society manages its limited resources in its aim to improve living standards."

Posted by: Brandon W at January 16, 2007 11:29 PM

Recall that economics is a social science, and accordingly two of the definitions Michael cites use the word "society." (The third itemizes society into consumers etc.) All three do also talk about scarcity, but societies have ways of dealing with resource scarcity that we do not usually think of as "economic," such as going to war to take other people's resources. So it's not enough to say that economics is about social behavior aimed at dealing with scarcity; we have to narrow it down and ask instead, What kinds of social behavior are truly "economic"? Those behaviors are then the proper province of economics.

My answer is that economics is rightly defined as the study of that uniquely human behavior that is the free exchange of one resource for another, i.e., trade. Think about it: All of the behavior that we think of as economic either directly involves exchange or is for the purpose of acquiring resources through exchange.

What about Robinson Crusoe raising crops for his own consumption on his desert island? Is that not an example of economic behavior that does not involve exchange? True, it does not, but it also does not meet the definition of social behavior, because it only involves one person, and we started by saying that economics is a social science. So, no, it does not fall within the definition of economics.

So my definition of economics is that it is the study of free, mutually beneficial exchange. Note that no invocation of "scarcity" is needed. Resources need not be actually scarce; benefits can occur even if resources are not scarce. What's essential is that there be exchange.

Note that this is consistent with the focus of Adam Smith's original work on the benefits of specialization, which only can be reaped if there is exchange. You would not survive long if you made only the goods you specialized in and did not trade some of them for others. And Ricardo's theory of comparative advantage seems expressly designed to show us that the opportunities for beneficial trade are more widespread than it might seem at first glance.

Posted by: MrGoodrant at January 17, 2007 02:35 AM

1st. Don't use any form of the word economy in your definition of economics. Webster would have your tale.

2nd even food is scarce in the economic sense of the definition. If it were cheaper we would find other uses for it. Oh wait, we are trying find other uses for it. fuel for cars. Ahhh, maybe the word shouldn't be scarce. Use limited instead. Even the most abundant resource has a limit. I think the limit or scarcity is important even for food too because the price of corn is going up as we begin to use it for fuel.

Posted by: Joe Cushing at January 17, 2007 07:42 AM

It was already 2:35 a.m. when I posted my comment above and I felt I had rambled on enough, but I really should have added this dismount:

It is no accident that these two founding fathers (Smith and Ricardo) of economics put exchange at the core of their theorizing. Exchange, not scarcity, is the essence of economics.

Posted by: MrGoodrant at January 17, 2007 11:21 AM

I appreciate all the responses, and I will have more to say later (have to get out this week's magazine).

One thing struck me though..to me the concept of 'economy' logically precedes the concept of 'economics'. I think that most people have a good intuitive notion of what the "economy" is, without necessarily knowing economics.

Or am I too much of an optimist about that?

Posted by: Michael Mandel at January 17, 2007 02:50 PM

Wow...

I posted a comment and actually didn't get accused of being Hugo Ch??vez. For once.

Posted by: Brandon W at January 17, 2007 04:16 PM

I quarrel with your definition for two reasons.

1. It leaves too much out. Some of economics doesn't aim to improve living standards but has only the aim of understanding the world. A simple example is the woman who wrote a Seattle newspaper and wondered why Washington State apple growers seemed to be "shipping the good apples out". In reply, two noted economists formulated the Alchian-Allen theorem (http://en.wikipedia.org/wiki/Alchian-Allen_Theorem).

2. A good is scarce if more is demanded than is supplied at zero price. Absent government interference, scarcity implies non-zero prices. While food items and some manufactured goods may be abundant I don't see many selling for zero prices. Even most "moving and manipulating of information" is positively priced. Scarcity is still very important to economics.

Posted by: Craig M. Newmark at January 17, 2007 06:45 PM

If we try optimization with no constraints, we get free lunch economics. I hate to say this Michael, but you just woke up an Angrybear.

Posted by: pgl at January 17, 2007 07:22 PM

How about:

Economics: The study of the allocation of finite resources to the production of goods and services that are desirable to society.

The definition should convey that the resources though vast and diverse do have some limits without resorting to a word such as scarcity that freighted with such negative meaning.

Posted by: trekbiker at January 17, 2007 08:57 PM

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 totally relevant, thank you very much.

Posted by: KipEsquire at January 17, 2007 09:25 PM

I actually really like Brandon W's definition...

Posted by: M.T. Paige at January 17, 2007 11:18 PM

I just want to know where I can mail the bill for my groceries and the big screen tv I want.

Posted by: Lord at January 18, 2007 12:07 AM

I teach econ to students for whom English is a second language. Trying to do that well necessitates having an acute awareness of the clarity of the meaning of the words I use.

There are both lay and economic meanings to the word "scarcity", and I believe Mandel is erroneously using the lay definition when he says "scarcity is not important." I find this a bit shocking.

If scarcity was "not a problem" then we wouldn't have to make trade-offs, or choices, and could have as much of whatever we wanted without giving up something else. That is patently wrong.

Also, using "economy" in the definition of economics reminds me of the joke:

Q: "What is economics?"

A: "It's what economists do."

Q: "What do economists do?"

A: "Economics."

Posted by: bartman at January 18, 2007 12:40 AM

I've got an open mind here. Craig, you make two good points...thanks. In terms of scarcity, you are of course right by definition. Something has to be a binding constraint, even if it's just time.

But I'm just wondering whether "constrained optimization" or scarcity is really the most useful or interesting angle to approach economics with. Right now I have access to far more information, at a zero marginal money price, than I can ever consume (trust me...we in the MSM are living with the flip side of this right now). I could in theory set this up as a constrained optimization problem--time spent online versus time spent working. But solving the constrained optimization problem never would have shown me that blogging, say, or wikipedia, would be useful ways of organizing the flood of information.

As for the purpose of economics--I guess this is one thing that I'm chewing on. I'd find it more satisfying to say that economics has a normative goal, which allows us to differentiate more useful work from less. I know that most economists won't agree with me.

pgl--I don't mind waking up the angry bear on this topic, since you and I have such a fundamental disagreement here. I want to give you a full reply, but it will take a bit of time to formulate right.

Posted by: Mike Mandel at January 18, 2007 07:27 AM

bartman,

I think the "economy" and "economics" are two different concepts...though it does raise the question about whether there's a good definition for "economy."

Posted by: Mike Mandel at January 18, 2007 08:06 AM

I would call an economy an ecosystem in which resources are distributed.

Posted by: M.T. Paige at January 18, 2007 01:05 PM

For me scarcity, price, and malfunctioning, are all only localized events, within the functioning economy. And I see individuals engaging in all economic activity with the purpose of maintaining or enhancing their living standard. Good discussion but it come down to I like functioning to describe economic activity, and just don't care for the word malfunctioning, I think you will find the editors at McGraw-Hill can do more for you than we can.

Posted by: Mike Reardon at January 18, 2007 02:03 PM

Economics is the observation and measurement of the impact of the actions of participants within the economy.

Posted by: Patrick Egger at January 18, 2007 05:21 PM

Economics is the pursuit of an understanding of the interplay between (1) costs of production, (2) profits to the the owners of vendors and distributors, and (3) prices for the customers. Application of such understanding is the domain of economic engineering.

Posted by: F. Arntz at January 18, 2007 10:58 PM

Scarcity is essential to the definition of economics.

The relevant point is that economics is no longer the appropriate body of knowledge to apply to the whole economy. Much of the economy has slipped out from under the purview of economic methodology. The error is not in the definition of economics, the error is that we have not yet developed a body of knowledge that is relevant to abundance. (I am working on it).

Posted by: evergreen at January 19, 2007 08:45 AM

Economics is the study of the Macro economy with the aim of improving living standards based on technological innovation, currency safety, and long term health and lifestyle choices. Ideally the standard of living should increase faster than the consumption of resources, and the mortality rate should decrease at the same pace as the birth rate.

Economic independence should be a lifestyle choice

encouraged by all Citizens until their death.

Posted by: Frank Drake at January 20, 2007 01:39 AM

you can't eliminate scarcity from the definition of economics because if it wasnt applicable in this era everyone would be parking their Ferraris in their 6-car garages with their Bentleys and flying their personal jets everywhere. If everyone could have everything they wanted then you would be correct in your definition, but unfortunately scarcity is still inherent to the definition of scarcity.

Posted by: BClark at January 20, 2007 11:31 PM

I taught economics for 25 years and a good definition of "economics" was always an issue. I now have more than 100 definitions in my database. However, what was obvious to me at the very start was that simpler was better, and "scarcity" should be a part of any definition.

My favourite has to be: "Economics is the study of how society uses its scarce resources." And most of my students agreed that this definition covered the essence of the science.

Posted by: Alex Roberts at January 21, 2007 07:27 AM

why are you afraid of scarcity? what is "wrong" with using that term in the definition? your original post seems ill-conceived due to your statement that 'economics, which doesn't depend on scarcity.'

Scarcity, though abstract, is not unreal. It is very real. Not to mention a much more appropriate term for your definition than 'economy' is.

Posted by: bk at January 22, 2007 09:20 AM

Oh, I'm sure scarcity is real, if you mean that some constraint has to be binding. For example, my time will always be scarce, in the sense that there is no more than 24 hours in the day. So that's the ultimate scarcity, no matter how many piles of 'stuff' I have.

But here's another question...if 'scarcity' is such an important concept, why does the term only appear once in many textbooks--in the definition of economics?

Posted by: Mike Mandel at January 22, 2007 02:25 PM

It seems to me that the terms "scarce" or "scarcity" amount to jargon, since outside the field of economics they hold connotations that are outside the scope of their meaning to economists. Jargon should never be part of a definition; particularly to newcomers to a subject. This is why I would argue for the use of "limited" over "scarce". I still stand by my adapted definition from earlier, but another might be:

"Economics is the study of how societies allocate, trade, and consume their limited resources and production."

Posted by: Brandon W at January 22, 2007 04:29 PM

I can live with "limited" over "scarce."

"Economics is the study of how societies and individuals use their limited resources," is short, snappy, and easy to remember. Both the general public and economics students alike would understand it, and immediately be able to form a mental image of the subject; or the concept when someone uses the word "economics" in general discussion.

Posted by: Alex Roberts at January 22, 2007 11:34 PM

Economics is our/the study reguardless of the conditions in effect of the economic processes of selection and adjustment within economic avitvity. Both abundance and scarcity are only present local condition in economic avitvity, they do define a present study of condition in local settings. Today adjustments and disposistion to abundance is a more present Western and Eastern economic concern, but again this is only a present condition within local economic activity.

Posted by: Mike Reardon at January 23, 2007 03:42 PM

Without relative scarcity there is no economics.

Posted by: Zephyr at January 24, 2007 11:47 PM

After the initial definition including scarcity the concept is communicated through the concept of supply. Labor is the ultimate scarcity. The supply of and therefor the price of everything is tied to it. The marginal cost of labor is always higher than the average cost so scarcity is always in play.

I think scarce is the wrong word though. Scarce implies that it is rare or hard to find. What they really mean is Limited. I think if you substitute limited for scarce it works. A resource can be abundant/not scarce but it cannot be limitless.

Posted by: Joe Cushing at January 29, 2007 01:52 AM

In Adam's Fallacy, Duncan Foley makes the point that scarcity is about allocation in a market setting, and without markets the scarcity framework is inadequate. The classic example of diamonds v. water, for instance, doesn't work in the setting of futures markets that are incomplete or don't exist.

On a more mundane level, textbooks are leading off in different ways to try and grab the attention of students. Some macro texts begin with growth models, for instance, not exactly in keeping with the scarcity concept.

Posted by: Miracle Max at January 29, 2007 03:01 PM

"I dislike your definition for several reasons, not the least of which is that it is too vague (what do you mean by "the economy?") and also normative. Certain people certainly don't study economics with an aim of improving living standards. In fact, I think that many economists starting with Adam Smith might find this motivation inherently suspect."

Have you ever actually read mr Smith?!

Your reply to the elematary scholars task of defining economics is unsurprisingly hostile. Not surprisingly since your motives for studying economics appear to be the exact opposite as were mr Smiths for writing his inquiry.

However, I think much of the replies do point one to the conclusion that modern economics has less to do with the public good as with proving the internal consistency of abstractly formulated logical models. Sir, your definition does tend toward a definition of " political economics."

I wish you much inspiration and insight in writing your textbook.

Posted by: M Karskens at January 29, 2007 06:56 PM

I would be very interested in reading the your thoughts about this proposed subject. I have often thought that one of the many failures of our economic models it that it presupposes that all decisions are made for the sole purpose of profit. I have personally struggled with this and would argue to my last breath that this is not nor is it ever the sole basis for steering decisions. Therefore does that mean that all if not most economic theories are flawed?

Posted by: P Gooden at February 2, 2007 05:31 AM

All very useful thoughts..I'm going to ponder this.

Posted by: Mike Mandel at February 2, 2007 01:10 PM

scarcity is surely a part of economics.

in your example, although there are lots of goods which brings the price down, and it seems to have nothing to do with scarcity. However, in this case, money is a scarcity, which is the reason that price is a real matter.

what's more, the origin of economics have the concept of scarcity.So if you care about the history of economics, scarcity should be contained.

Posted by: lanyu at February 3, 2007 09:24 PM

Economics is all about relative scarcity.

Posted by: Zephyr at February 4, 2007 05:05 PM

I'm a little late to the thread but my critique:

1) My pet peeve is including the word "Economy" in a definition of Economics. That's EXACTLY like saying "Mathematics is the study of Mathematics." Which is not terribly helpful. If you don't know what Economics is, you probably don't understand what the Economy is.

2) Your value injection about wanting to improve living standards is totally inappropriate. You want REAL scientists to laugh at you? "Physics is the study of Physics for the purpose of making puppies happier?" If an individual Economist wants to use his knowledge to make life better that's fine, but the science is about observation and understanding, not having an agenda. "Economics" has no aim except understanding, well, "Economics".

3) Finally, my own definition is elegant and simple and should immediately be enforced by federal law and the use of brutal re-education camps for Econ PhDs:

"Economics is the study of how people organize and manage themselves and the resources available to them in order to satisfy their material needs."

Posted by: Kevin at February 6, 2007 11:52 AM

I always liked to think of economics as the science of optimal choice. making the choice, given the resources, that best optimizes output and societal benefit.

Posted by: Eric at February 16, 2007 02:52 PM

I am sure that you are coming with something ancient-new. There are big gaps between nations in our days for that each nation should study economics on her style. For example,scarcity is nonsense in the US, because a US citizen consumes 5times as any other human in the world. While in Africa, scarcity is something in their life, dealing with it wisely is the only way to ensure life.

I would like to more deeply discuss this with you, if you have time or interest, please email me to the above mentioned email... I have a lot of examples and stories to share :)

Anyway, thanks for this new wise idea.

Rayess

Posted by: Khaldoun Rayess at April 3, 2007 10:34 AM

In my classes, I use the definition that Economics is "the study of the production, distribution and consumption of goods and services." But, one cannot go around the scarcity issue as we are limited in many ways. Even if we assume that all other resources are abundant, we will see be limited by time and we will have to make decision with constraint in mind.

Posted by: Leo Murembya at April 3, 2007 10:40 AM

It is true that Economics is how we use limited resources, but one has to also consider technology in the equation. We all know that limited resources leads to rising prices but technological improvements has lead to declining prices in some products.

Posted by: James Anderson at April 10, 2007 10:37 AM


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