Economic definitions

I start the 2nd ed. of my Free Market Economics with a set of definitions of the common words that are brought across into economics and then used as technical terms. But while technical in economics (e.g. neither “demand” nor “supply” are, for example, specific amounts) their slithery meanings create an imprecision that makes discussion sometimes difficult. The book therefore starts with a set of definitions that try to nail down what each term means in the context in which they are used. But the definitions are also ordered so that they present the entire argument of the book, which is an explanation of why only a market-based economy can create economic prosperity. And here a market based economy is defined as one in which private entrepreneurs, who are unknown and unrelated to anyone in government (except by chance), make most of the economic decisions in an economy and personally carry the responsibility for the success or failure of the enterprises they run.

Each term should therefore be seen as itself carrying part of the weight of the argument. They are each discussed because they provide an important part of the story. You cannot understand how an economy works unless you understand supply and demand in a particular way, which you are very unlikely to have thought of unless you have formally studied economics.

But it is also necessary to fit each of these concepts into a larger framework representing the economy as a whole. The parts are then seen in relation to some fuller context. In this I am following Aristotle as discussed by Mary Midgley* who was looking at biology when she wrote:

[Aristotle] starts from the basic, primitive question about each particular, “What’s this for?” and proceeds by looking for whatever outcomes can, in the particular context, be intelligibly seen as advantages. By doing this systematically it begins to understand these various functions as parts of larger wholes, systems within which the relations between the various parts continually makes better sense of them.

The productive apparatus of a community, the aspects that contribute to the production and distribution of both goods and services and of incomes, works in some way. These definitions are the words necessary to understand both how these outcomes are explained as well as being able to follow the theories that are used. Theory is a representation of reality. These words used as they are properly defined are the necessary elements in making sense of the theory. And I might add, it is necessary to understand the theories to make sense of the words as they are used. The fusion of the words within properly specified theories is what an education in economics is about.

* Mary Midgley. 2014. Are You an Illusion? Durham UK. Acumen.

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