Nature of Economics

What is economics?
The word economics is common to everyone.
Ask anyone you meet
around, be it here inside the WMSU campus or there at the market, and you will
be surprised to know that people really have perceptions about economics or
something about the economy. Let them talk freely as to how they "see the
economy" today, and no doubt you will hear them saying: so hard to find money,
income is not enough, no chance of getting a job here, endless sky-rocketting of
prices, no investments coming in, and good for the chinese - they virtually have
the entire city's commercial district! And if you further get harsh comments
"bullshitting" tricycle drivers "extortionary fares," the stinking market at
downtown area, the undisciplined Baliwasan PUJ drivers picking up passengers in
the middle of the street, then, you have simply found out that the person has
plainly expressed his or her disgust over something away from the borders of
economics yet statements which have been originally precipitated by some
economic reasons.
But what is really economics? To begin with, it is best to discuss the origin
of the term and give its most common definition. From various sources, the
origin of the term is attributed as far as to the time of ancient Greece when the
word oikonomia was coined, the meaning of which was simply limited to the idea
of management of the household. The original meaning of the term was limited
within the household set-up and not as a "policy prescriptions for the workings of
society or state in general. From the time of ancient Greece, the term may have
evolved in its meaning during the medieval period until, during the 18th century,
the field of study was formally "turned into a science" by a Scottish Philosopher
Adam Smith, now regarded as the "father of modern economics" when he
published his famous work the Wealth of Nations in 1776.
Today, and as it is commonly defined by most authorities in the field,
economics is defined as a social science which deals with how man could best
allocate the scarce resources in order to bring about the fullest satisfaction of
human wants. This is what I call as the classical definition of economics. The
classical definition poses some questions which ultimately would lead to
generate more and more questions. It is for this reason that, without changing
the substance of the definition, I "redefine" economics by simply "rephrasing the
classical definition" with the use of terms that would give plain and simple
meaning to the discipline and getting rid of more potential controversial
questions.

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The first point of controversy in the classical definition is the term scarce
resources. The question that should be asked is: are resources really scarce?
Are resources, say those that are given by nature, really scarce? Take the case of
petroleum. Is it scarce? May be in our country but abundant in the Middle East
as they are the main source of world oil supply. But oil-rich countries have
scarcity in water! The question therefore is, from whose point of view do we say
something is scarce? Are diamonds really scarce? Well, now technology could
produce diamonds in the laboratory! Is gold scarce?
There's plenty of gold
deposits on the earth's surface!
There's a lot more in other planets! What
about rice? Bread? Uranium? Levi's Jeans or cellphones and electronic loads?
And of course, what about money? For those who could hardly afford to eat even
once a day, money may be extremely scarce! But perhaps, it may be the exact
opposite for the President of the Microsoft Corporation.

Let me introduce two concepts - absolute scarcity and relative scarcity. To

better have a deeper insight into the point I'm trying to drive at, It is best to
remind ourselves as we ponder recalling the story of creation. Did God ever
miss something in creating the universe? Was there something lacking? Or that
you may believe that everything was perfect as the mystery of the whole
universe virtually demonstrates perfection? And just assuming you believe in
the story of creation, do you ever wonder why the human being (Adam) was the
last to be created? Well, I simply offer a simple answer to this question and I
would say that God simply would want to make it sure that everything was
complete, that all biological and all other preconditions for man's survival and
continued existence had to be perfectly guaranteed! God would simply want to
make it sure that everything was created complete for man. Now, if everything
was created complete and perfect, why the scarcity? The universe is complete
and perfect because creation is perfection itself. And, I believe that there is no
scarcity (properly, absolute scarcity) when we talk of all the gifts offered by
nature as a result of creation! There may only be relative scarcity, that is, the
temporary lack or minimal presence or even absence of some resource at a
given time and place.
The second point of controversy has to do something with the concept of
satisfying unlimited wants. The problem in the classical definition somehow is
rooted in not properly differentiating the concept of wants from needs. In fact, in
conventional economics, wants and needs are simply treated as equally the
same! No doubt, one's needs could surely be satisfied. One's daily needs could
be quantified. But never for the wants of people because human wants, the
craving for something..., can never be satisfied no matter when and no matter
where.
And because wants has no limit, unfortunately, the attempt to "bring
about satisfaction to unlimited wants" sparks the "competition of the beasts in
the jungle gradually devouring its own kind and threatening its very own
survival". This is exactly what is happening today! Because we tend to satisfy
wants of people by tolerating a system that perpetuates "satisfaction of wants

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culture instead of stabilizing a social order that simply guarantees provision of

needs.

Rephrasing the Definition:

From the above observation, I think it would be best to rephrase the

classical definition without changing its substance.
And so I rephrase the
classical definition simply into: a social science which deals with the two basic
human activities: production and consumption. From this statement, the phrase
"allocation of scarce resources" in the classical definition is embraced in the word
production while the phrase "satisfaction of human wants is embraced in the
term consumption. Simple enough, economics is basically production and
consumption. Further, between the spheres of production and consumption, lies
the sphere of exchange or distribution which we might properly refer to as the
sphere of the market. The illustration below tells us these three (3) spheres
which I would label as "components" of the economy.
This same illustration
simplifies my further discussion about the division of economics: microeconomics
and macroeconomics.

Division of Economics
The study of economics may be divided into two areas: microeconomics
and macroeconomics. What is microeconomics? From the word micro (meaning
small, as in the word microscope or microscopic referring to the tiny particles),
microeconomics refers to that branch of study that focuses merely on any of
those specific components as illustrated above. For example, if one studies the
firm, how and how much a firm produces, the inputs it buys, the profit it
generates, then that area of study is a microeconomic study. Same for a study
that focuses solely on studying, say, household income, how a household earns
and spends income, its consumption pattern and the like, such is also a
microeconomic study. Also, the study of the market, how buyers and sellers
interact creating price fluctuations in the market prices, is also a microeconomic
study. But when a study is made in such a way that you see the interplay of all
these components, that is, a study that involves all the three components, then
the study becomes a macroeconomic study. Say, for example, the study about
national income, how government raises revenues that come from various
sources. Such is a macroeconomic study. The study about growth in the
economy or development programs, such is a macroeconomic study. To simplify,
any study that is concerned with any one of the components, such is a
microeconomic study. When it is the study of the economy as a whole, then it is
macroeconomics.

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Economics as an interdisciplinary field of study

Our approach in the study of economics is "macro first approach". This
makes the study easy and interesting to students. From experience, it is best to
familiarize students first to the "overview" of the whole economy. How the
economy is doing. Why the economy is such in a desperate situation. "Why is
the system this way?" Triggers reactions and comments and seeming endless
discussion. So, when the overall development programs are discussed vis-a-vis
the real social condition of people, economics is simply broadened to something
else that surely would involve the realm of politics, law, culture, values, attitudes,
and even religion. The study therefore of economics is not economics alone.
The study of economics is much appreciated only if it is discussed in relation to
other social sciences. As such, it is an interdisciplinary field of study.
One must always bear in mind this reality that: economics, politics and
culture are inseparable attributes of society. Even at the individual level, though
ordinarily one may not be conscious of it, the interplay of economics, politics and
culture is clearly demonstrated. Take for example, when one goes to school. As
one wakes up early morning and prepares for school, that in itself, is politics - the
decision of going to school. And so one takes breakfast, perhaps prepares food
for lunch, and makes sure there is some money for fares and for some other
expenses. That in itself, is economics. The shoes that one prefers to wear, the
shirt, pants or whatever outfit and accessories one pleases to display all
constitute the aspect of culture. Everything we do in everyday life, the aspects
of politics, economics and culture are always present. So when one decides to
go to school, such decision is political as all decisions are fundamentally political.
But if one has really no money for fares, no breakfast to take, or even no food for
the day, then one's decision to go to school may be suspended. And so here we
see how economics has totally affected politics. In fact, in such a situation,
economics determines politics! And with more reason that it could determine
culture.

The above discussion clearly demonstrates the proposition that economics

becomes the primary determinant of political and cultural conditions.
It is
commonly asked: why is power confined only in the hands of the rich? True
enough, economic power begets political power. That political power rests on
the hands of the wealthy! A rich man could not just decide but he has "so much
power" to decide! And that "so much power" to decide is rooted on the very fact
of his being rich! And the reality is that, politics in this country is solely the
domain of the wealthy! There may be a few exceptions.
But so few to be
counted.

It cannot be discounted how economics shapes culture. If culture is simply

understood as a way of life, then it is no doubt that the economics of capitalism
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has totally shaped capitalistic culture of people. When I say capitalistic culture
or capitalist culture, I mean that the way of life today is very much centered on
money! It's as if everything is measured and judged in terms of money. How do
you regard the wealthy? You look them high. How do you regard the poor? You
look them down. That's the usual attitude. But why? Possibly because we look
at things in terms of money value. Why do so many students these days flock in
the College of Nursing? What motivates them to go into such study knowing
very well that the market of nursing graduates, as recent surveys reveal, has
already been much saturated? Surely no doubt, everyone desires to work abroad
hoping to earn dollars! Why do people, almost all people now if only they have
the chance, desire to go abroad? Again, in search for the "almighty dollar". And
so, thousands if not millions are flooding out of the country. And the results?
Tremendous social cost - families disrupted, children suffering phycho-emotional
crisis, worse, and some migrants lost sanity in the midst of waging battle against
loneliness in foreign lands. All caused by that desire for money and for more and
more money without even realizing that that craving simply would never come to
an end! That is in the minds of most people today. In fact, that's the prevailing
consciousness of most people today. The capitalist consciousness that has
conditioned minds of people to look at things in terms of money value. And so
we live life as if we live for money!

Economics and Ethics or Morality

One particular concern in the study of economics that has become a
major point of critical discussion and controversy is the question of whether or
not economics could be totally value-free, that is, whether or not economics as a
field of study could stand on its own devoid of the influence along issues or
concerns pertaining to moral judgment.
You may observe that as you read
introductory topics in economics, you will certainly come across this subject on
the concept of "what is a scientific statement as distinguished from a "normative
statement". I really do not know why authors have to make this distinction at
the start. But from my experience..., with all my readings in the subject, I
seemed to have grasped the "rationale" behind this "introductory caution" why it
has to be made. Simply stated, it's like saying: because economics is a science,
then economic decisions, as much as possible, should also be made or
constructed in the "best scientific fashion". In fact many experts have emerged
in this discipline who now claim to have developed sophisticated quantitative
approaches in understanding "economic behavior" of human beings telling
peoples of the world by cautioning them what's the best scientifically-valid
economic option to take. That this one is the "best economic program" and that
one is "uneconomic". These modern-day "economic gurus" (who come from
today's rich and powerful capitalist states) have turned to be economic prophets
with their "scientific prophesies and "scientifically-proven economic
prescriptions" to remedy or cure the "sick economies" of poor countries.
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Let's try to look at some very real issues today. Take for instance
the issue of population and economic growth. An economic growth model has
recently been developed and so popularized as a model for those Third World
economies aspiring to rise above their present status. This is the popular Solow
Growth Model developed during the 50s and 60s by Robert Solow who finally got
the Nobel Prize in Economics in 1987 for his unparalleled contribution in the
subject of economic growth theory. The theory really sounds "quantitatively
scientific" with its sophisticated analysis on capital, labor, population and
depreciation factors in a given economy. The theory, in a way, is largely rooted
from the Malthusian theory of Robert Thomas Malthus who popularized that
famous postulate that population increases faster than food supply" and that
"its increase is geometrical in ratio compared to production which is arithmetical
in ratio". The Solow Growth model is similarly constructed along that premise
but somehow substantiated with mathematical sophistication where finally
"critical points and gaps" are inferred from the analysis of the model. And the
seeming conclusion is: curb or control population growth in order to attain
economic growth! It is from this theoretical model that many developing
countries have launched population control programs in the hope of having an
increase in growth rate!

But what happens to the moral issues surrounding the population control
program? Are they serious issues that should be considered or better discarded
or set aside because they would simply tend to be nuances of the "most
desirable and scientifically-valid economic decision" in the light of the
"scientifically-proven economic growth model" of Solow? But what is really the
truth of the matter? Is it correct or right to curb population growth? Is it really
morally right to subject millions of people to all these "sterility stuff? Because if
we dont do it now, it would be a complete tragedy in the future? And who are
the brains behind this economic prophesy? That if we dont limit or control our
numbers, then there will be not enough space (also shortage of resources) for
everyone?

Try to look at many other situations.

Analyze the moral dimension of
environmental destruction all for the sake of economic growth. Is it not a moral
concern as we deprive the future generations of the blessings of mother's earth
resources that now we greedily consume to the finish?
Is there no moral
concern behind the continuing massive production of war armaments? Military
spending at the expense of more important allocation for social services?
Spending in nuclear weapons that if only "war investments" are channeled to
peaceful and productive ventures, world hunger would finally be put to a stop?
Are decisions on these issues be made without regard to ethics or morals?
Perhaps, only when you reflect deeply on all these questions will you come to
gradually develop your firm resolve as to the need why economics should
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seriously regard the realm of ethics and morality. And that is why economic
decisions should be made with utmost regard to value judgment.

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