This will be the first in a series of posts about basic economics. By no coincidence, “Basic Economics” by Thomas Sowell is the inspiration for much of these postings, though I will be doing quite a bit of paraphrasing.
The British economist Lionel Robbins gave the classic definition of economics:
Economics is the study of the use of scarce resources which have alternative uses.
For any desirable resource, there will frequently be more people who want the resource than there is resource available. For example, let’s consider beachfront property. Beachfront property is a scarce resource. There are far more people who would like to own beachfront property than there is property available. Some people will get this property and others won’t. There are many different ways this property could be allocated. For example:
- In a pure capitalist economy, whoever pays the most, gets it.
- In a command economy, a government official would decide who gets it.
- In an anarchistic economy, whoever is strong enough to seize it and hold it gets it.
- It could be allocated randomly through a lottery.
- It could be allocated on a first come, first serve basis.
- It could be allocated based on some type of contest.
Beachfront property also has alternative uses:
- It can be used as a public beach.
- It can be used as a private estate.
- It can be used as an inexpensive hotel.
- It can be used as a luxury hotel.
- It can be used as a timeshare.
- It can be used as a marina for small boats.
- It an be used as an industrial port.
- It can be used as a port for large passenger ships.
- It can not be used at all and kept as a nature reserve.
I’m sure that more time brainstorming could determine other allocation mechanisms and other uses.
The key point here is that no matter how we allocate beachfront property, there will be some people who get it and others who don’t. That is true whether we have a capitalist economy, a communist economy, or any other economy. We can’t expect any economic system to make everybody happy. How then should we determine which is the best economic system?