Fundamental Facts
The reason that what you find here differs from what you will find in the text books is mostly about those assumed ladders we mentioned. Economists like to make a lot of assumptions that are not necessarily true. One of the reasons for those assumptions is simple bias; they help them get the answers that they want to get. Another reason is that they like to pretend that economics is a “hard” science—call it physics envy—subject to immutable cosmic laws like Newton's laws of motion. This pretense requires a lot of assuming because economics at its roots is a very messy business. We, however, like to go to the roots, so we must get past those assumptions. That the messiness is unavoidable is apparent from the first fundamental fact about economics, a fact economists simultaneously affirm and deny.
The First Fundamental Fact. Economic activity arises from the fact that our material well-being as humans depends on the systematic, organized interaction of many other human beings. When you think about economics you may think about jobs, or money, or wealth perhaps, or, if you have taken a basic class on the subject, the allocation of scarce resources. All of those things are important because at root economics is about the social, cultural and political systems that enable society to produce and distribute the things and services that we need and want.
You may remember when former British Prime Minister Margaret Thatcher declared in 1987 that “There is no such thing as society.”
No one has ever said anything more wrong in the history of human language. Human beings are more interdependent than any species that has ever existed. Individually we are weak and helpless; together we have conquered the planet. I am as much a part of society as my little finger is a part of me. Were my finger to be cut off it would die and I would be lesser for that loss. I am as dependent on the society in which I live as is that finger on the rest of my body. I am dependent on people speaking languages I have not even heard of. I am dependent on the ideas and inventions of people who have died long ago. I could certainly not be who I am, and probably not be alive, without the assistance of countless others.
Economics is Interdependence. Economics, fundamentally, is the study of that interdependence. That is, it is an aspect of human interaction as a society and as a civilization. As such it can never be fully extricated from politics, psychology, and other social sciences.
So why would someone like Thatcher, who was not a stupid woman and had strongly held views on economics, say something so obviously wrong? The short answer is that she, like the rest of us, believed what she wanted to believe regardless of facts or logic, and the reason she and others like her want to believe such things is that they wish to deny the arbitrary and often capricious way in which the products of our collective efforts are distributed. They wish, in short, to believe that poverty is the fault of the poor and that the rich are wonderful people whose good fortune is the just result of their enormous virtue.
Justice and Economics? That brings up another complication. Not only can we not extract economics fully from politics and sociology, but nor can it be understood completely apart from our ideas of right and wrong, our concept of justice.
So. We can now look at the roots of this very complex system (or system of systems), with caution and awareness of how easy it is to allow our preconceptions to confuse us. We will try to avoid that confusion, but at the same time remember that we are dealing with the behavior of human beings, which are complicated and unpredictable critters indeed.
Why Does This Matter? Economics is not about immutable, eternal laws over which we have no control. It is the product of human institutions and customs which humans can change. We need understanding and motivation.