The First Philosophy of Economics: Scarcity


Bosch - The Garden of Earthly Delights

~ The Garden of Earthly Delights by Bosch

Scarcity is a fundamental fact of life (Frank, Bernanke, Gan, & Kang, 2009). The study of economics is relevant as a consequence of scarcity. Every economist strives to overcome the problem of scarcity. The fight against scarcity is, of course, a losing battle. The world will always be a place where the unlimited wants of the people face the limited resources available to satisfy those wants. And unless God, for whatever reasons, allows us back into the Garden of Eden, this reality of life will never change.


Scarcity affects us in more ways than we normally think it would. Take for example religion. Buddhists believe that life is all about suffering (dukkha) and the reason for all this suffering is desire and greed (tanha). Hence, the Buddhist solution to the problem is to limit your needs and wants to the basic necessities. Taken to the extreme (and perhaps fanatical ends), some Buddhists preach vegetarianism, celibacy, abandonment of earthly bonds, and in some places, the necessity of making your children monks! In other words, the solution to our problem of consumption is to eliminate the consumers (as far as it is possible).


Schopenhauer, who borrowed a lot from the orient including but not limited to Buddhism, preached a world as will, and therefore strife, and therefore misery (Durant, 2005). His philosophy centers upon the will of every individual that he describes as unconscious, spontaneous, and imperious. There is no escape. ‘We do not want a thing because we have found reasons for it, we find reasons for it because we want it (Durant, 2005).’  According to Schopenhauer, “Men are only apparently drawn from in front; in reality they are pushed from behind.”


The ideas of Schopenhauer would fully blossom in the hands of Sigmund Freud who claimed that much of our lives are governed by unconscious ideas and impulses that originate in childhood conflicts (Rathus, 2007). The verbal slips that we make and the dreams that we have at night, more often than not, represent our unconscious wishes (all our wants)!


Putting philosophy and psychology aside, economics is the study of how people make choices under conditions of scarcity and of the results of those choices for society (Frank, Bernanke, Gan, & Kang, 2009). Scarcity forces us to make choices. And because everyone works for their self-interest (see last article: Self-interest), economists can come up with models (however imperfect) to predict human behaviour based on costs and incentives. Hopefully, such predictions will enable policymakers to be forward-looking and establish policies that will benefit the whole society.


The aim of economics is not to eliminate scarcity, which is impossible, but to ensure that we can obtain the most utility and satisfaction based on the available resources that we have in our society at a specific point or period in time. This efficiency of production and consumption of the entire society, or macroeconomics, boils down to individual choice, or microeconomics.


The condition of scarcity in our world contains many implications. But among them, a few stand out as fundamental and self-evident. The first is the ‘no free lunch principle’. Scarcity makes trade-offs necessary, and thus, makes us choose or compromise between competing interests. Philosophically speaking, this means we have the freedom to choose. However, it also means that we are forced to make choices, and that our freewill is in no way ‘free’.


The second is the need for rationing device. A rationing device is a means for deciding who gets what of available resources and goods (Arnold, 2008). In our society, the predominant rationing device is money. Money decides whether you can own (and maintain) a Ferrari or not. As an object, money is mostly paper (or your plastic credit card), but for an economists, money is a rationing device that determines what you can consume in a society.


The consequence of rationing devices is competition. Hence, competition along with the need to make trade-0ffs, and rationing devices exists because of scarcity. Lionel Robbins stated, “Economics brings into view that conflict of choice which is one of the permanent characteristics of human existence.” In a nutshell, I quote a paragraph from The Instant Economist (Taylor, 2012):


‘No person can have everything he or she wants. No society can have everything it wants. Trade-offs are unavoidable. In a modern economy in which people have a wide variety of skills and desires, the question is how to coordinate the decisions about what is produced, how it is produced, and for whom it is produced.’


Train of Thought

  1. Scarcity is a fundamental fact of life and people work for their self-interest.
  2. Because of scarcity and people working for their self-interest, rationing devices exist to determine who gets to consume what.
  3. People compete for these rationing devices and make calculated rational choices to enable them to consume more and improve their personal wellbeing.

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