What Is The Economy?

The economy is simultaneously mystifying and straightforward. Everyone has experience with the economy. Everyone participates in it. Everyone knows something about it – long before the pinstripe wearing economist appears on TV to tell you about it.

The forces and relationships you investigated on your walk are far more important to economic life than the pointless ups and downs of the stock market. Yet our local economic lives are nevertheless affected (and disrupted) by the bigger and more complex developments reported in the business pages.

At its simplest, the “economy” simply means all the work that human beings perform, in order to produce the things we need and use in our lives. (By work, we mean all productive human activity, not just employment) We need to organize and perform our work (economists call that PRODUCTION).

And then we need to divide up the fruits of our work (economists call that DISTRIBUTION).

What kind of work are we talking about? Any kind of work is part of the economy, as long as it’s aimed at producing something we need or want. Factory workers, office workers. Executives, farmers. Teachers, nurses. Homemakers, home builders. All of these people perform productive work, and all of that work is part of the economy.

What do we produce when we work? Production involves both goods and services. GOODS are tangible items that we can see and touch: food and clothes, houses and buildings, electronics and automobiles, machines and toys. SERVICES are tasks that one or several people perform for others: cutting hair and preparing restaurant meals, classroom instruction and brain surgery, transportation and auditing.

Where do we perform this work? Productive work occurs almost everywhere: in private companies, in government departments and public agencies, and in the home. In cities, in towns, on farms, and in forests.

Why do we work? We must survive, and hence we require the basic material needs of life: food, clothing, shelter, education, medical care. Beyond that, we want to get the most out of our lives, and hence we aim for more than subsistence. We want a greater quantity, and a greater variety, of goods and services: for entertainment, for travel, for cultural and personal enrichment, for comfort. We may also work because we enjoy it. Perversely for economists (most of whom view work solely as a “dis-utility”), most people are happier when they have work to do – thanks to the social interaction, financial well-being, and self-esteem that good work provides.

How do we distribute, and eventually use, the economic pie we have baked together? In many different ways. Some things are produced directly for our own use (like food grown in a garden, and then cooked in a household kitchen). Most things we must buy with money. We are entitled to consume certain products – like walking down a paved street, listening to the radio, or going to school – without directly paying anything. Importantly, some of what we produce must be re-invested, in order to spark even more economic activity in the future.

So when you think about the “economy,” just think about work. What work do we do? What do we produce? And what do we do with what we’ve produced?

The Economy and Society

The economy is a fundamentally social activity. Nobody does it all by themselves (unless you are a hermit). We rely on each other, and we interact with each other, in the course of our work.

It is common to equate the economy with private or individual wealth, profit, and self-interest, and hence it may seem strange to describe it as something “social.” Indeed, free-market economists adopt the starting premise that human beings are inherently selfish (even though this assumption has been proven false by biologists and anthropologists alike).

In fact, the capitalist economy is not individualistic at all. It is social, and in many ways it is cooperative. The richest billionaire in the world couldn’t have earned a dollar without the supporting roles played by his or her workers, suppliers, and customers. Indeed, our economic lives are increasingly intertwined with each other, as we each play our own little roles in a much bigger picture. That’s why most of us live in cities (where the specialized, collective nature of the economy is especially visible). And that’s how we can interact economically with people in other countries, thousands of miles away.

The economy is about work: organizing it, doing it, and dividing up its products. And at work, one way or another, we interact with other people.

The link between the economy and society goes two ways. The economy is a fundamentally social arena. But society as a whole depends strongly on the state of the economy. Politics, culture, religion, and international affairs are all deeply influenced by the progress of our economy. Governments are re-elected or turfed from office depending on the state of the economy. Family life is organized around the demands of work (both inside and outside the home). Being able to comfortably support oneself and one’s family is a central determinant of happiness.

So the economy is an important, perhaps even dominant, force in human development. That doesn’t mean that we should make “sacrifices” for the sake of the economy – since the whole point of the economy is to meet our material needs, not the other way around. And it certainly doesn’t mean that we should grant undue attention or influence to economists. But it does mean that we will understand a great deal about our history, our current social reality, and our future evolution as a species when we understand more about economics.


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This post contain the content of book Economics for Everyone – a Short Guide to the Economics below is link of complete book 

Economics for Everyone – a Short Guide to the Economics