Economics is NOT about money
(Introduction to Economics, Lesson 2)
Before you can learn what Economics is, it is really going to help if you can first clear your mind of some of the common, but fundamentally misleading misconceptions about what Economics is actually about.
The biggest misconception about Economics concerns money. This would come as quite a surprise to most of the population, but Economics is NOT about money. Most people seem to think it is, but it isn’t!
Think of it like this: We use money to buy food, housing, books and thousands of other goods and services. The money goes one way (to the person or business we buy those goods from) and the food, housing and books go the other way (to us, the consumers of those goods) — but it’s the food, housing and books that are the really important things. If these important resources continued to be supplied, but no money changed hands, we’d be OK — we could carry on as before. On the other hand, if money moved, but no resources were supplied, we’d all starve to death. That’s the difference in importance between money and real resources!
Money is relatively unimportant. We can survive without money. This, after all, is exactly what the human race did for many thousands of years. Instead of using money, early man simply used a system of bartering — people would simply swap things they had plenty of for other things they didn’t produce themselves. Many people didn’t even use bartering. They simply met all their needs for themselves, by harvesting the bounty of the natural world around them.
Money is very useful, of course, as it allows much more complex trading than would be possible with only a bartering system. However, this doesn’t make it more important than the actual resources we need to survive. We can survive without money, but we cannot survive without real resources.
Furthermore, as a species, if we had less money, this needn’t make us any worse off at all. Imagine that tomorrow, as if by magic, half the money in the world simply disappeared. Every individual person looked in their wallets, purses, under their mattresses and in their bank accounts — and found that half their money was missing.
This would undoubtedly cause a lot of head scratching. However, it is not a disaster. Although we’d all have less money than before, we wouldn’t have lost any of our real resources. We’d still have the same number of farms, people, houses, cars and factories as before. If you think about it, all we’d need to do would be to cut the prices of everything in half, and we’d be able to carry on pretty much exactly as before.
Yet, turn on the news almost any day of the year and you could easily get the impression that all the world’s economic problems are due to a lack of money. Politicians or commentators might argue that we can’t afford to build new schools or provide better healthcare because we don’t have enough money. They might claim that we don’t have enough money to provide everyone with a decent pension and a comfortable retirement at a reasonable age. Such claims, however, are nonsense. They’re complete fiction!
If lack of money really was at the heart of all our economic problems, we could simply print more of it. Sovereign governments are never actually going to literally run out of money. They have the legal right and the facilities to print as much money as they could ever possibly want or need.
Of course, simply printing loads of money wouldn’t actually solve our economic problems — but that’s because lack of money isn’t the cause of our problems in the first place. Printing money might only cause prices to go up — and that’s because, whilst we can pretty much magic more money up out of thin air, we can’t magic real resources out of thin air.
Economics is not really about money. It’s about real people, real resources and real achievements. It’s about looking at how we, the people who live on this planet, use the real resources available to us and how we can organise ourselves more effectively so that we can make better use of those resources and achieve more as a result.
Sometimes, we genuinely lack the necessary natural resources to get an important job done. More often than not, however, we only lack resources because we have squandered them. We’ve failed to make proper use of the natural resources available to us. We’ve wasted them. We’ve failed to organise ourselves effectively. These are the problems we really ought to be dealing with.
Unfortunately, with politicians and commentators in the media banging on endlessly about a lack of money, a sort of brainwashing effect takes place and both these people and the general public come to believe that movements of money are actually more important than the movements of real resources — as if the money paid for food is more important than the food itself and the people who eat it, and as if the money paid for books is of greater economic value than the education those books can provide.
It is this ridiculous and misleading assumption about the overriding importance of money that prevents people from understanding Economics. Far from economists being obsessed with money, it is the ability to see the world in terms of real resources and real people, rather than in terms of money, that is the hallmark of a real economist. You must purge your brain of this obsession with money if you are ever to be a skilled economist.
Unfortunately, most people seem incapable of doing this. They’ve been brainwashed for so long, it’s become almost hard-wired into their brains to assume that economic difficulties are always the result of a lack of money. It doesn’t matter how carefully you explain to them why this is clearly nonsense, they refuse to accept that it is. (I hope you’re not one of these people!)
It is important to realise that misplaced ‘money-think’ crops up all over the place and gets in the way of us, as a society, identifying the causes and finding the solutions to our economic problems. You’ll be reading an article by a newspaper columnist or listening to a politician on the radio. They might even seem to be making some sort of sense, as if they actually understand the issue in question. Then they’ll go and blow it all by making some ridiculous remark about the country’s economic problems being due to a lack of money. Why don’t they just round off by claiming the moon is made of cheese?