Here's a Dozen Top Things to Remember about Economics

By Stanford, Jim | CCPA Monitor, July/August 2008 | Go to article overview

Here's a Dozen Top Things to Remember about Economics


Stanford, Jim, CCPA Monitor


UNDERSTANDING CAPITALISM:

When you read my book-Economics for Everyone: A Short Guide to the Economics of Capitalism-you'll learn a lot about economics-from a critical, grassroots perspective. There are a few crucial lessons from the book that I hope you will keep in mind. These key themes will help you to analyze specific economic issues and controversies as they come up. They are key principles to help sort out what's important in the real economy from what's not-and to distinguish reality from ideology.

So here's my personal list of the dozen top things to remember about economics:

1. The economy depends on social relationships, not just technical relationships, and (like society) it evolves and changes over time. There is no "natural" order to the economy. There are no inherent, unchanging laws governing its behaviour. What we call the "economy" is simply the way human beings work together, to produce goods and services, and then decide what to do with what we produce. And there's nothing permanent about it. Everything about the economy-technology, geography, social relationshipschanges over time.

2. Economics is an inherently subjective, value-laden, political discipline. The economy is not natural, unchanging, or objective. And the study of the economy-what we call economics-is just as subjective and impermanent. The economy embodies conflicting interests between different groups, and economics closely reflects those conflicting interests. No school of economics can claim to be neutral or objective. Different approaches to economics rise and fall, depending on the course of economic (and political) debates and conflicts. Every approach to economics combines an analysis of how the economy works, with a set of values and assumptions regarding how it should work (and in whose interests). Beware of economists bearing free advice-especially if the economist claims to be "objective."

3. Productive human activity is the only force that adds value to the resources we harvest from nature. "Work," broadly defined, includes all forms of productive human effort-including paid employment, unpaid work within households, and the managerial work of business executives. Without work, nothing happens in the economy. There are a few goods which humans can consume directly from nature (like fresh air, peace and quiet, or wild berries plucked from a bush). Everything else requires the application of human effort, to transform the resources and raw materials we get from nature into goods and services we can use.

4. Using tools makes work more productive. Humans discovered very early on that it is much better to use tools than our bare hands. The invention, production, and accumulation of "tools" (defined broadly to include machinery, structures, infrastructure, and other kinds of physical capital) has been the central feature of economic development through human history. Developing more advanced tools, and training people to use them effectively, must occur at the same time. However, tools themselves are not productive: it is the knowhow embodied in those tools (that is, knowing to make tools first, and then use them to produce the goods and services we actually want) that is productive. Merely owning a tool is not, in itself, a productive act.

5. In capitalism, most work consists of employment. Employment is work that is performed for someone else, in return for the payment of wages and salaries. About 85% of households in developed capitalist economies rely on employment as their dominant source of income. Managing the employment relationship is a central aspect of capitalism. Employers face a complicated challenge to try to minimize their labour costs, while simultaneously maximizing the effort and discipline of their employees. This relationship introduces an inherent conflict of interest between workers and capitalists. At the same time, there are times when workers and capitalists may choose to cooperate with each other. …

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