Our Economic System is Based on Scarcity

THE ECONOMIC PROBLEM

Sometimes it’s helpful to ask fundamental questions like: Why have jobs? Why have private property? Why have an economic system at all?

The answer to all these questions can be summed up in a single word: scarcity.

Humans want things. Lots of things. Things like hamburgers, cars, and back massages. Unfortunately many of these things are scarce. So we need a method of apportionment. And that method is our economic system.

This is not a new idea. Lionel Robbins famously defined economics as “the science which studies human behavior as a relationship between given ends and scarce means which have alternative uses.” Moreover, the fundamental problem of economics is often summarized as “how do we satisfy unlimited human wants with limited resources?”

Institutions like markets, money, private property, and wage labor are all creative attempts to solve this fundamental problem. Such institutions form the fabric of every day life. It’s very difficult to imagine a world without them. But it’s important to remember such institutions are all predicated upon the same assumption of scarcity.

SCARCE RESOURCES VS. ABUNDANT RESOURCES

With this idea in mind, it’s easy to see that scarcity is the source of all monetary value. People are willing to pay for scarce resources. In contrast, they rarely pay for resources that are abundant.

By way of example, consider two resources: air and grain. Both are desirable. But while air is abundant, grain is scarce. And so we pay money for grain. We do not pay money for air.

Every successful business is engaged in the monetization of a scarce resource. A grain farmer sells scarce grain. A consultant sells scarce advice. A radio station sells the scarce attention of its listeners.

But what’s scarce today may become abundant tomorrow and vice versa. Describing these changes is the key to understanding the impact of technology on our economic system.

We believe that the future promises more abundance than any other period of human history. This abundance is a double edged sword. On the one hand, it promises solutions to our most fundamental human problems. On the other hand, it threatens the foundations of the economic institutions we have grown dependent on.

One thought on “Our Economic System is Based on Scarcity

  1. Yeah it threatens the foundations of the economic system. i Hope it destroys it.
    The fact that commodity prices are based on scarcity is a huge flaw in the “economic system” one could even say that its not very economic at all. Then only people who are dependent on the economic system as it stands are the grossly rich. The majority of the world would benefit from abundance.
    Even money, its value is based on scarcity, which is actually controlled by a few to keep a few rich. I mean we would need to get rid of money all together eventually. We will live in a world with abundant resources and money is no longer needed.