Nicolaus Nemeth

Foundations of Economic Science

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2) The real basic problem of economics is more fundamental than the scarcity of resources--it is the scarcity of labor.  Resources are scarce because labor is scarce, and as the productivity of labor rises, so does the supply of resources.

I'd like to clarify point #2: by "resources" I mean raw materials, machinery, equipment , etc.; in other words, goods that man is capable of employing for the production of wealth. I realize that one might consider all the materials in the universe as "resources"; however, I don't think that it's valid to consider materials that one has neither access to nor capability of employing, as "resources". In other words, iron on Mars is not a resource until man has access to it, can bring it back to earth and use it productively. Iron on Mars is only a potential resource.

This is why only a rise in the productivity of labor, brought about by technological progress and capital accumulation, can increase the supply of resources man can employ to produce wealth. For example, the oil deep under the ocean floor and deep beneath the ground became a resource only when the technology to drill at such depths and the capital with which to invest in such technology became available. Increases in the productivity of labor also increased the supply of steel, machines, tools, crops, etc.; i.e., resources.

I hope it's clearer now why it is the scarcity of labor, not the scarcity of resources, that is the more basic problem of economics: resources are scarce because labor is scarce.

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Tom,

I agree with you on everything you said in the last three posts. You did a great job of clarifying what I was trying to say in my last post. I think I'll start using that dating example myself. :-D

I still want to justify our definition of economics. I think the starting point is the definition of wealth. At the starting point, we need to declare that we are studying a particular value and that is the idea of wealth*. From there it is not hard to see that many things make up wealth. Each of these things is wealth, a material value. The name that we give to these distinct material values is goods. From here, we can see yet another difference. Some goods come to us without any effort on our part, such as sunlight. Other goods need our effort to come about, such as an automobile. The goods that require our effort we call economic goods.

At this point, we need to integrate another aspect of philosophy into what we’ve done so far. We need to realize the implications of our politics. The end result of having a proper government, within the context of wealth, is the establishment of the division of labor. By instituting Capitalism, people will voluntarily bring about the division of labor. This has implications for the effort that we put into creating economic goods. The division of labor being an organization of our productive efforts means that we produce economic goods within the context of the division of labor.

Putting all of the above together, we can finally see how economics is the science that studies the production of wealth under a system of division of labor. I think this is the justification for the definition of economics.

*I’m using wealth to mean all material values. I have to thank Tom Rexton for clarifying this point. It was after realizing that wealth was a collective noun that I finally saw most of what follows.

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Nicolaus,

Putting all of the above together, we can finally see how economics is the science that studies the production of wealth under a system of division of labor.

I'd add one more aspect to your definition:

"Economics is the science that studies the production and exchange of wealth under a system of division of labor."

Examples:

- Analyzing unemployment rates = Studying the exchange of wealth, specifically in the labor/service market.

- Analyzing interest rates = Studying the exchange of wealth, specifically in the market for money. Money being a form of wealth, since, in a proper economy, it is simply a claim on some defined material good (i.e. gold, silver, etc.).

I think this aspect may be easy to miss because the production of wealth often entails the exchange of wealth. However, the production of wealth does not always entail the exchange of wealth, which is why I think the distinction can and should be made in the definition of economics.

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I still want to justify our definition of economics. I think the starting point is the definition of wealth. At the starting point, we need to declare that we are studying a particular value and that is the idea of wealth*. From there it is not hard to see that many things make up wealth. Each of these things is wealth, a material value. The name that we give to these distinct material values is goods.

Where do services and intellectual property fit into this?

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Economics is the science which studies the principles of human value allocation and exchange.

Economics is the science of the production of material wealth...There is more to the definition, as has been discussed in HBL but I'm stressing production vs. allocation. Allocation is too wide, including charity (private and otherwise) and theft. I'm sure the following does not apply to you but

I've long been highly suspicious of definitions of economics which include allocation and/or unlimited

desires and/or limited resources. It seems an expression of cynicism and can and has been used by

socialists to justify anything they feel is important.

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Bob has just met Mary at a bar and wants to ask her out on a date.  He wants to do so in such a way that she'll accept.  There are, of course, several ways Bob can go about doing this.

And so we've fulfilled your definition:  Bob's chosen to pursue a value from among many others--Mary--and he's got to choose the best way (from many other ways) to ask her out.  I suppose, then, that economics also offers advice on dating and relationships?  :o  :D

Excellent (and funny) example of my point that allocation is too wide. When I was a philosophy student, professors in each of the humanities departments claimed that their field, eg, economics, English, was the basis of all knowledge.

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Where do services and intellectual property fit into this?

Services are a form of wealth. The production of wealth therefore includes the rendition of services. Intellectual property is an exclusive license to use or reproduce an intellectual product for commercial purposes. Thus its ownership and sale is part of the process of the production of wealth. It is not itself, however, a form of wealth--no more so than is a title to private property.

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Nicolaus,

I'd add one more aspect to your definition:

"Economics is the science that studies the production and exchange of wealth under a system of division of labor."

Where do services and intellectual property fit into this?

Both of you point out something that I think is essentially part of the same idea. The key to understanding this is in the division of labor.

In order to study the production of wealth under a division of labor we must study the division of labor. The division of labor is the system where each person produces one thing and must trade with others for fulfillment of most of his needs. The definition implies exchange of wealth. Services are properly within the realm of economics because they are services within the context of wealth. There are services that are not within the realm of study by economics and they are so precisely because they are not within a wealth-productive context. Intellectual property is part of the laws that make up the division of labor. Also, they have practical implications for how certain goods are produced.

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Where do services and intellectual property fit into this?
Services are a form of wealth.  The production of wealth therefore includes the rendition of services.

But services are different from goods. Goods are material objects, but services, while their purpose is to affect material objects, are not actually material themselves. Services are actions while goods are entities.

Shouldn't any definition of "economics" include services explicitly?

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But services are different from goods.  Goods are material objects, but services, while their purpose is to affect material objects, are not actually material themselves.  Services are actions while goods are entities.

Shouldn't any definition of "economics" include services explicitly?

I believe the phrase "production of wealth under a system of division of labor" necessarily entails the rendition of services, for services are only possible--and necessary--under trade, under the division of labor. Furthermore, much of the service industries are in fact directly a part of the process of production of wealth: financing, transportation, communication, retailing, wholesaling, etc. are mainly concerned with the manufacture and distribution of goods.

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Economics is the science which studies the principles of human value allocation and exchange.

Does Robinson Crusoe alone on an island need economic science?”

“Do we need economic science if we live within a society?”

economics is a value-free science, and is therefore not concerned with whether values are rational or materially beneficial.  It is a common mistake to believe that irrational or non-material goals fall outside economic analysis.

1. Caution. I believe that is a statement of cynicism and subjectivism. After all, it applies to theft and begging as well as production. Economics is the science of the monetary integration of production in a division-of-labor society. I've been influenced here by George Reisman's _Capitalism_ (downloadable free from Capitalism Mag.) and also HBL discussions on the definition. To be brief, economics is basically about production, not the allocation of whims. It's also not basically about unlimited desires relating to scarcity since the context here is emotion, not reality.

2. 3. Economics is needed in a division-of-labor society in which production is long-range and, to an extent, out of the control of any particular individual. Short-range production and production which is the same kind for all can be understood by common sense. Science would be not needed.

4. From Salsman's "Economics and Self-Interest," as I understand it, production is rationally selfish. Irrational and selfless people dont and cant produce. Thus economics studies man valuing production as a product of rational selfishness. But whether we should produce is an ethical question.

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