By Neil
“…All the perplexities, confusion and distress in America arise, not from the defects in their constitution or confederation, not from want of honor or virtue, so much as from downright ignorance of the nature of coin, credit and circulation…”
—John Quincy Adams, 1829
Economics. I’m sure the very word makes you tremble with excitement and anticipation…not.I imagine most people, especially teenagers, would rather read a dictionary than study economics.
You know why? Because they don’t understand it. I’m convinced that’s the reason many teenagers dislike school in general. They simply don’t understand what they’re taught. I blame a lot of that on the failures of government-run education… but that’s another topic. For now, let’s attempt to gain a basic understanding of economics.
Economics covers a vast, complex combination of people, things, and actions. Economies have existed since the beginning of human civilization, and will continue to exist until the end of time. Although most people don’t realize it, economics affects the life of every single human being on the face of the earth (with the possible exception of hermits and the like). However, with all its vastness and complexity, the basic principles of economics are surprisingly simple, while the importance of understanding them cannot be overstated. So in order to grasp the role the economy plays in our daily lives, let’s examine the basic principles of economics. (For a more detailed explanation, I highly recommend Whatever Happened to Penny Candy? by Richard Maybury, which is my source for this article).
Economics is a science, just like physics or biology. However, instead of observing the natural world, economics is a study of the relationship and interaction of people and the stuff that they own (which also includes the work that they do as well as their physical possessions). The purpose of this science is pretty obvious: the more we know about how people get stuff, the more we know how to get more stuff ourselves.
Now, although as Christians we should not seek earthly treasures (Matt. 6:19), we are to be good stewards of what we have (Matt. 25:14-30), and provide for ourselves (2 Thessalonians . 3:10). Thus, even we as Christians will benefit from knowing how to get more stuff.
There are three ways people get more stuff:
(1) going out and getting it from nature,
(2) trading something they own for something they want more, or
(3) stealing it.
Getting things from nature is how we increase the amount of possessions present in our society, so that’s a given; after all, if no one has any stuff there’s nothing to steal or trade. Stealing takes many forms, including taking things which were not intended to be available (such as illegal downloading), using deception to rip someone off in a trade, or downright theft. Of course, not only is stealing wrong, but it is widely recognized as wrong (in most forms), so as a result there are laws which prohibit it. That leaves trade, which is the main focus of economics.
Here’s how it works. Say I have a forest near my house, so i decide to go cut down some trees and make some furniture for my house (a good example of getting stuff from nature). Meanwhile, you decide that you’re going to plant a garden in your backyard (again getting stuff from nature). Well, I start getting hungry after making all the furniture, and you want a place to sit down and chill after working out in your garden all day, so you offer to trade me a bushel of corn for a rocking chair. I accept, because after all, I have plenty of furniture, and you have plenty of food from your garden. Thus, the corn is more valuable to me than the chair, while the chair is more valuable to you than the corn. In the end, both of us are happier after the trade, because both of us got something we wanted more than what we had. Thus in that sense, both of us got richer. This is the basis of trade in economics: people exchanging their goods or work for other good or work that they want (or need!) more.
So where does money fit into the picture? Good question. Money is simply the easiest valuable to trade. Instead of trading chairs or corn, which are bulky and have no set value, we just trade money for what we want. Money is good because it’s liquid, which means it’s valuable, and easy to use and trade. So I give you something you want (say an iPod), and you give me something I want (money), which I can then go exchange for something else I want (like a Chick-fil-a spicy chicken sandwich!). Sounds simple right? It is. That’s a basic economy: a group of people who have all gotten things (from nature or other people) that each other wants, so they trade what they have for what they want, and everyone gets richer.
Now here’s the problem: what happens if someone (a third party) comes along and starts interfering with people’s trades, telling people what trades they can make and how they can make them. Suddenly, one or both parties aren’t getting what they want out of the trade or are getting it at too high a price. Then they either eat the loss (get poorer), stop trading (which means people don’t benefit from their product), or raise their prices (which means others pay more than they want and the cycle continues). Thus, the third-party interference causes problems in the trading, which hurts the economy and makes people poorer. The third party might also interfere by telling the people what they can use for money, often something no one wants or needs (like a piece of paper). Then they might add more and more of that money to the money supply (this is called inflation), so that each piece of money (which was already worthless) is worth even less. At that point people get more and more scared of the money, until they’re willing to exchange it for almost anything because it’s more valuable than the money (this is called runaway inflation). Again, the third party has made a complete mess of the economy.
Now why would anyone in their right mind submit to such interference? The answer: they wouldn’t… unless the third party forced it on them. Are you starting to see where this is headed? Yup, that’s right, government is the third party. You see, most governments (for various, often sinister, purposes) try to regulate the economy of their country. Many times the people even ask them to, because they don’t understand how the economy works. The bottom line is this: the economy works best if it is simply left to itself. Most of our economic problems are a result of government involvement in the economy.As Ronald Reagan so wisely observed, “Government is not the solution the the problem, government is the problem.” Outside of the punishment of actual crimes (such as stealing), the government only makes things worse all the time claiming that it’s making things better.
Of course, the more the government has control of the economy, the more control it has over the people, which is the goal of most government officials (whether they admit or realize it or not).
Thus, they push for more and more control, telling us that it’s not fair that others have more than us, and that they’ll level the playing field.
What they don’t tell you is that in order to do that (or look like they’re doing it), they will have to raise taxes and/or print more money, both of which will only make the economy worse and take away more of your money.
Most people don’t understand that when they cry “Give me more!” they are really saying “Tax me more!” As the old saying goes; “there ain’t no such thing as a free lunch.”
So even though economics may not be your favorite subject, it is extremely important to understand; not all the numbers and equations, but the simple, basic concepts. The economy affects what job you get, what college you attend, what food you eat, what stuff you buy; in short, every physical aspect of your life is affected by the economy. Thus, to be wise and prepared, and not just be a helpless victim of the ever-changing world, we must know how the economy works, as well as what the government is doing with it.
This is only a brief look into the principles of economics. Although it is quite simple to understand, it takes more than one article to give a full explanation (Again, for more information I suggest you try Mr. Maybury’s great book). But suffice it to say, for people to get richer and prosperity to continue, the economy has to work properly. For it to work, it must not have interference from third parties, such as government.
If government interferes, the economy will not function as it should, resulting in poverty, high prices, unemployment, and political unrest, which usually lead to more interference, or worse. So as we examine our elected officials, let’s keep these thoughts in mind, and only support those who push for a free economy. And when people tell you that you can’t understand economics, don’t believe them. Many people don’t want you to understand. Knowledge is power.
— Neil
“A wise and frugal government, which shall restrain men from injuring one another, which shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government.”
—Thomas Jefferson, 1801