# What economics is Economics is the "soft [science](science.md)" of how (and more importantly why) people transfer goods and services throughout society, which requires observing how and why people transfer [value](values-quality.md), especially regarding [decisions](people-decisions.md). Money is the easiest way we can store and retrieve value, so measuring the flow of money is a decent-enough way to track how [power and wealth](power.md) are created and moves between people. Money flow measures [well-being](goodlife.md), but only in a secondary sense. Other factors (e.g., the [culture](people-culture.md) of the country) are far better indicator's of well-being, but *much* harder to measure, so economists simply use [money](power-types.md) to measure human [purpose](purpose.md) and make [educated guesses](imagination.md) at why by using many [charts](math.md) to work with those [measurable](math.md) elements. However, economic measurements aren't very precise: - They're good for approximate understanding (e.g., a doctor gets paid more than an unskilled laborer) but terrible at precision (e.g., a lousy doctor is *worse* for society than a brilliant unskilled laborer). - Any change to 1 thing automatically affects at least 3 other things, and nobody can predict how many things it'll change. - We gain value based on what we *[appear](image.md)* to do, not what we actually do. This is often the same, but [not always](image-distortion.md). Irrespective, there is a type of free market wired into our existence, which represents a type of social "natural selection". ## Value We make [choices](people-decisions.md) to [trade](people-contracts.md) or [make](creations.md) things from our [understanding](understanding.md) of [value](values-quality.md). This value is entirely subjective, based on our needs and wants and our [beliefs](understanding-certainty.md) of others' needs and wants, and ties closely into our concept of [meaning](meaning.md). APPLICATION: Because we consider the price of things compared to what other people would pay, the easiest form of reflecting uninhibited demand would be a [Vickrey auction](https://en.wikipedia.org/wiki/Vickrey_auction), where everyone privately [communicates](people-conversation.md) their price to the seller and the winner pays the *second*-highest price. We frequently find value in things we don't care for ourselves but have come to believe other people do. Unless we know specifically who, we'll often stockpile those things for the gains we [imagine](imagination.md) long-term. Because it's tethered to [culture](people-culture.md) instead of the individual, it's a bit less volatile than individual concepts of value. It also means we only feel value in an individually [useless](purpose.md) pile of one specific thing based on the future value we'll get from others' trades for it. APPLICATION: Capitalism only concerns itself with self-interest from others, so it's oblivious to [discrimination](image.md). In fact, it often *hurts* bigots who discriminate. The contested [political issues](politics-conservativeliberal.md) around capitalism tie more closely to unequal [power](power.md) distribution among [large groups](groups-large.md). The elements that shape capitalism arise from net win/win from its [consequences](results.md). Even with its [inequalities](classes.md) and [injustices](morality-justice.md), capitalism will persist as long as [human nature](humanity.md) has selfish elements. We tend to assign more value to things we have than things we don't, which means we tend to only [feel right](mind-feelings.md) about selling our things at a price higher than what we paid for. For this reason, even when the price of something is *very* fixed, there's always 2 prices (a lower "asking price" and a higher "receiving price"). APPLICATION: The idea of a universal basic income sounds fine in theory, except that money is a completely relative value that's interpreted as having an absolute value based on what it can do for people, which means giving everyone at least a certain amount of money will make every amount of money above that amount proportionally less (i.e., if everyone instantly had at least $10,000, the people with $20,000 would only have twice that instead of the relationship between that money and the cost of living). The better solution is to simply give universal basic goods and services directly through the government. Anything associated with the physical world has a certain limited quantity ("scarcity"). The more scarce, the more we generally [value](values-quality.md) it. Water, for example, is usually near-worthless, but someone will give *everything* for it if they're close to dying of thirst. APPLICATION: Value is very relative to [utility](purpose.md). For that reason, more of something (e.g., from [technology](technology.md)) makes life easier in general but decreases the unit value of each of those things. In the process, creating more of something slowly decreases its [meaningfulness](meaning.md) as more of it exists. With the odd exception of [addiction](addiction.md), our [decisions](people-decisions.md) tend toward scarcer things. Our concept of economic value is based on [information](understanding.md), mostly on scarcity and others' interpretations of value, which can *never* be complete. The measurable value of something fluctuates *constantly* for several reasons: - Information about things is constantly changing, and we're constantly [learning more](understanding.md) about that thing as we observe it. - Changing information implies a [story](stories.md), and therefore a [trend](trends.md) we try to [predict](imagination.md). - We [imagine](imagination.md) everyone else who may be observing the thing is doing the two above things like we are. Economists define "income" differently than [accountants](money-accounting.md). While accountants generally define income as revenue minus expenses, economists consider income as any change in net worth plus things that were spent and given away ("consuming"). Free competition with scarcity has a double-sided [risk](safety.md) to it, and only people with a low enough agreeableness [personality](personality.md) can thrive in it. A consumer may enjoy producers competing for their [spending decisions](money-1_why.md), but generally doesn't like competing with other consumers for a limited supply of something, which is why [job-hunting](jobs-1_why.md) is typically stressful for most people. ## Money supply Money is issued ("printed") by governments. Nobody complains because governments have the market cornered on [punitive force](power-types.md), and they usually manage the money supply reasonably well enough. People use money for a few reasons: - It's scarce because governments only print a limited amount. - It's a measurable and "portable" type of [power](power-types.md), so it's easy to keep around and stockpile (except for the risks from inflation). - For the sake of [control](power.md) and organizational [understanding](understanding.md), [government taxation](money-accounting.md) policies are typically based on money transactions. Governments can print money, but they're not the only organizations who can. [Blockchain technology](computers-blockchain.md), for example, is the backbone of cryptocurrency. In that situation, the scarcity is the mathematically regulated number of blocks contained on a chain, instead of a government's [control](people-rules.md) over supply. A country *has* to print more money constantly to keep up with the growth of a country, and it's in the best interests of a government to have an overstated value of their currency, so inflation is a natural result. However, too much printing and there will be runaway inflation as the value of each "denomination" goes down. It's a delicate balancing act. If inflation becomes too uncontrolled, it can ravage society. However, a steady inflation rate is only a risk to [those who have wealth stored](classes.md). For non-wealthy people, they just have to find [a better source of income](jobs-1_why.md) instead of finding another place to safely weather out an inflationary spike. Because of things like [technology](technology.md) and society's [trends](trends.md) about commonplace activities, measuring inflation is absurdly complicated and somewhat controversial on how to approach it. Plus, because so many people are observing metrics like inflation, some government policies can play math games with the money supply to make inflation [appear](image.md) differently than it really is. However, technology *does* create inequality, to the degree that some people don't have it. Very often, when a disastrous destruction of value happens (such as [getting invaded](people-conflicts-war.md)), a [country](groups-large.md) will suffer *massive* hyperinflation. This can make ridiculous situations like someone having to cart a wheelbarrow full of bills to the market just for a loaf of bread. On the other hand, tremendous increases in value (such as winning a war) can generate *immense* wealth for a country to print tons more money and keep it relatively at the same value. ## Exchanges Every economic activity is a trade, with any differentiation in timing or future promises becoming a type of [business contract](people-contracts.md). People are always trading toward fulfilling their [purposes](purpose.md), which almost always have [self-interested elements](humanity.md). We exchange many types of goods and services: - [Skills](understanding.md) at operating, manipulating, or creating - Expert [knowledge](understanding.md) or training about a subject - Natural or farmed resources - Finished goods - Physical strength and energy - Spare time - Networked connections with other people - Feelings of peace or freedom from guilt - Reputation or affiliation with groups APPLICATION: In a hyper-capitalistic society connected by many [social networks](people-conversation.md), the most extreme [personalities](personality.md) will naturally rise to the top of the social ladder, with the competition and social churn being the same as [political/warfare](people-conflicts-war.md) but where nobody dies: - The hardest-working people will run the [leadership structures](groups-large.md). - The [funniest](humor.md) and most [charming](influence.md) people draw all the attention. - The shrewdest [contract](people-contracts.md) [negotiators](people-conflicts-negotiation.md) become the wealthiest. People only trade upward, never down. We only sacrifice something because it has *less* value to us than the thing we're trading for. APPLICATION: As long as people can privately own things, legally or illegally, they'll try to trade for it to gain their self-interests. This is practically a [human universal](humanity-universals.md). In any exchange, both sides *always* benefit from the trade. Even under duress (e.g., blackmail), there's a perceived benefit for both sides to make that exchange. APPLICATION: The stunning reality of capitalism is that it *constantly* plays out in society at large, even harming [everyone's equal treatment](classes.md) or [political fashions that try to redirect it](politics-leftism.md). No matter how badly a [government](people-rules.md) can [break everything](mgmt-badsystems.md) or how much [hardship](hardship.md) everyone can endure, people form the [natural order](unknown.md) of free markets [no matter what](humanity-universals.md). Even when we *give* things away, we're usually calculating a more elaborate [purpose](purpose.md): - How those people interpret [value](values-quality.md) - Our [relationship](people-friends.md) with those people - The [feelings](mind-feelings.md) we'll have when they [respond](people-conversation.md) to our gift A free market is where someone wants to trade something of value, and nothing else interferes with it. While the value of things is compared to other similar things, that value is *constantly* moving around because of how relative it is. However, a market is never "pure". Market distortions adapt a free market from considerable factors that move things around: - Government taxes will change a market, especially if they're focused on particular goods or services. - People will usually pay more for novelty (i.e., it's a new [trend](trends.md)). - There may be "barriers to entry" for people new to buying or selling something (e.g., government certifications, [insurance](money-insurance.md) guaranty bond). - Governments or large organizations may set price limits or [regulations](people-rules.md). - Beyond the supply cost, labor costs can be affected by other factors like overtime laws, minimum wage, and labor unions. - Governments may subsidize or fund programs that would otherwise not be viable on a free market. - *Any* [influence](influence.md) whatsoever that advances or subdues a [social trend](trends.md) can temporarily distort everyone's [purposes](purpose.md). Generally, most market dynamics are actually 2+ markets that influence each other. For example, news and social media are the markets for people's attention but are influenced by the market for advertisers wanting people's attention. In some sense, *all* human interactions ripple into all other human interactions in some small way, which makes it difficult to measure or [predict](imagination.md). ## Public goods Many things are completely free ("public goods"): - Public services like police and firefighting - Libraries and parks - Science funding - Lighthouses and most roads - Natural resources like clean air and water People tend to take better care of things they own. Since nobody owns a public good, nobody can benefit from maintaining it, and it usually depletes or decays ("tragedy of the commons"). The tragedy of the commons has a few possible solutions: 1. Most commonly, tax the public and maintain it with paid government workers. 2. Use a variation of [private property](people-boundaries.md) rights to motivate people to maintain it (e.g., [advertising](marketing.md)). 3. Abolish *all* private property to make *everything* a public good, which is essentially [communism](politics-leftism.md). 4. Assuming there are no [barriers to entry](mgmt-badsystems.md) (e.g., "crony capitalism"), the tragedy of the commons gives [entrepreneurs](socialrisk.md) the motivation to create private versions of public goods. Some economists believe the market shouldn't dictate the cost of a [worthwhile](purpose.md) public good. They propose that governments should manage things society needs that are unprofitable to maintain. Concepts like a Universal Basic Income, where everyone receives a fixed amount of subsistence money, make that amount of money everyone receives a public good. ## Medium Generally, items are easier to trade when they're relatively permanent and easier to measure. They're also easier for a government to control if they're not that useful. Thus, governments issue uncollected [debts](money-2_debt.md) as a tradable commodity, and we know it as "money". Money is a [human universal](humanity-universals.md) because it [represents](symbols.md) stored [power](power.md). ## Specialization People instinctively separate tasks and take [specialized roles](jobs-specialization.md) they prefer (industries and occupations). Economies are immensely diverse. People of all types who would normally *never* [associate](people-friends.md) with each other voluntarily will constantly and frequently meet to trade. Income inequality comes from how each job has a different value to everyone. [Leftist](politics-leftism.md) governments typically lower the pay of high-paying jobs to equalize labor, but they always have to force future workers to invest their human capital in that task (e.g., becoming a lawyer takes lots of school, so it's not worth the effort if welding pays the same). Since unskilled workers don't have a specialization, they have a difficult time entering the workforce and are usually paid a low wage: - Most entry-level jobs are *very* low-wage, and usually impossible to subsist on. - Minimum wage laws temporarily raise low-wage jobs' pay but force employers to hire fewer people. This prevents unskilled workers from building their human capital through work experience. - Raising the minimum wage also creates a more difficult environment for smaller organizations to compete in the marketplace, meaning more [monopolies](mgmt-badsystems.md) can take control. - Eventually, when *everyone* has more money (due to inflation), its collective value goes down. This means a minimum wage's [consequences](results.md) are merely temporary. ## Supply vs. demand Supply is how much of something there is, and demand is how much people [want](purpose.md) it. Their relationship determines how much people will pay for things: - When there's more supply or less demand, people won't trade as much to get it. - When there's less supply or more demand, people will trade more to get it. - This entire relationship is because everyone is considering what they [desire](purpose.md) relative to what they [imagine](imagination.md) everyone else will do. People make [decisions](people-decisions.md), but with limited [information](understanding.md). If all people had complete wisdom, they'd make perfectly wise decisions, and any measurable [value](values.md) would only fluctuate a little bit. However, people choose to withhold information, plus there's simply breakdowns in [communication](people-conversation.md). For that reason, people make frequent incomplete decisions without realizing until later ("adverse selection"). Cost increases for trading are sometimes predictable: - The cost of making or transporting something - Risks of damaged goods or theft - [Taxes](rules-methods.md) and government fines - [Illegalization](people-rules.md) [Technology](technology.md) improvements and infrastructure will usually lower costs: - More affordable ways to deliver it - Lowered risk of damage or theft - Increased accessibility to new markets One of the downsides of technology, though, is that it strips away [meaning](meaning.md) from most goods and services, specifically as they [trend](trends.md) from novelty to commonplace. ## Human capital Human capital is the added total of someone's non-material assets: - [Knowledge and skills](understanding.md) - Health and strength - [Creativity](mind-creativity.md) - [Willpower](humanity.md) Unlike money, human capital is *very* difficult to measure. Most economists don't consider the [culture](people-culture.md) of a people group in their projections, and ambitious cultures who value wealth are often compared with relaxed cultures who find [meaning](meaning.md) without money, with an *extreme* discrepancy between the measurement and reality. [Education](education.md) is the most powerful human capital [when with other people](influence.md). With it, people can easily avoid or overcome most hardships and losses. ## Illegal When something becomes illegal or too difficult to do legally, but people still like [doing it](purpose.md), they will either find [alternatives](mind-creativity.md) or trade secretly. This creates hard-to-measure underground "black markets" (also known as the "informal economy"). Black market risks make items *much* more profitable because there's a higher chance of death or loss from performing any services with them. Plus, people can use black market transactions to extort or blackmail. Unlike normal markets regulated by governments and public attention, the only [rules](people-rules.md) in black markets are [strength](power.md) and secrecy. Anything that's made illegal slows civilization's ability to freely [develop](jobs-specialization.md) in that area. Generally, shutting down black market activities or buying from them (i.e., to get those things off the market) will make that market pricier and give more incentive to sell within it. Black markets will trade almost *any* goods or services [against organizational rules](people-rules.md): - Substances with addictive properties or the [inspiration](mind-creativity.md) for destructive [purposes](purpose.md), like alcohol or recreational drugs. - Heterosexual or homosexual pornography and prostitution services. - Specific sexual fetishes like child pornography or watching people get murdered. - Certain [media](creations.md) like music, movies, or video games that [symbolize](symbols.md) specific [ideas](values.md) or [educate](understanding.md) about certain things. - Specific collectible things like animal horns or objects from another [people group](groups-member.md). - Objects that could be used as weapons (especially against the leadership), such as firearms, grenades, nuclear material, or biological weapons. - [Other people](slavery.md), typically for [labor](purpose.md) or [sexual](gender.md) reasons. With increased [risks](safety.md) to transferring goods, as well as having no overseers to regulate it, the product's [quality](values-quality.md) in a black market will suffer compared to an open market. ## Business Every time someone trades a good or service, both people are busy exchanging something, which is doing "business", often with an implied [contract](people-contracts.md). All business requires taking [risks](socialrisk.md) to succeed because we can't precisely [predict](imagination.md) the [purposes](purpose.md) other people have. These trades fulfill our wants and needs through exchanges, so business [organizations](groups-small.md) aren't *just* trying to make money: 1. Each individual in a business has the self-interested need to survive. 2. Businesses increase their survivability through maximizing profit. 3. Businesses maximize profit by provoking others' [trust](trust.md) to trade with them. If there's [competition](people-conflicts.md), they *must* do a better [job](image.md) than their competitors. Capitalist societies reward organizations and individuals who add what the public [perceives](image.md) as value. While many people can [distort their image](image-distortion.md), [reality](reality.md) eventually catches up to them. [Entrepreneurship](socialrisk.md) and corporate management aren't at odds with charitable giving. A capitalist society permits entrepreneurs to [find ways](mind-creativity.md) to fill society's needs while profiting in the process. A massive corporation only exists because it has added [value](values-quality.md) to many people (even when it's [horrifically inefficient](mgmt-badsystems.md)), not by [stealing power](people-conflicts-war.md) away from everyone else. As [organizations](groups-large.md) grow, diminishing per-unit costs ("economies of scale") permit enormous companies to produce items for far cheaper than individuals ever could. [Accounting](money-accounting.md) is the language of business, and [marketing](marketing.md) is the art of conveying value. Individuals who [understand](understanding.md) business can often trade their things for more, merely by [crafting](creations.md) their [image](image.md) for customers and governments. ## Speculation Everyone [expects](imagination.md) markets, or at least certain items on those markets, to change value over time ("speculation"). The primary way they do this is by looking at the [patterns](symbols.md) that existed beforehand, typically with the [belief](understanding-certainty.md) that what happened last time will happen again. Several factors mean the patterns of market behavior will never occur the same way each time: - Across years and generations, the [culture](people-culture.md) has shifted, so everyone's [decisions](people-decisions.md) will be a little different. - The [technology](technology.md) has changed, often for the better, meaning [information](understanding.md) will flow *much* faster and change [narratives](stories-storytellers.md) more rapidly. - People *know* [what happened last time](stories-storytellers.md), so they will make [changes](people-decisions.md) based on that information. Often, they'll start a [trend of knowledge](trends.md) that can sometimes redirect the movement of activities through an entirely different set of circumstances. Further, in an [over-information society](https://stucky.tech/purpose/), *multiple* trends may be playing out at the same time. It can be very unclear *which* trend will most articulately replay itself, and the results can be dramatically different. ## Speculation games There's one way for a government to discourage a market with speculation, though it only works if nobody is aware of it: 1. Buy up or shut down a *lot* of the market, sending the price rapidly upward. 2. When all the market owners want to cash out, dump all the assets back onto the market, dramatically lowering the price. Private investors do it with a variation of it called a "pump and dump scheme", where they inflate the market value as far as they can, then sell off *tons* of their ownership in the market. Every time a [government's laws](people-rules.md) *might* change the availability of a market item, the market will reflect it. More government restrictions mean more expected costs, and more lax restrictions mean competition that creates lower prices. ## Supply chains In a large-scale social system, it takes a long time for things to get from one point to another. This creates what's called a "supply chain". A seasonal item that's in higher demand when the weather changes, for example, might get manufactured halfway across the world half a year beforehand. The existence of a supply chain means people can somewhat [predict future market events](imagination.md) and make [investments](money-investing.md) on those expectations. For that reason, investors often make market decisions for *future* events like a pending product windfall or a looming shortage. In any [disaster](hardship-disaster-1_short.md), the risks to civilization's collapse don't come from any individual people or group being incapacitated, but the supply chain at large. ## Market corrections Most economists argue incessantly about how much markets correct themselves ("the invisible hand"). Since markets are so vastly complicated, it's currently impossible to [understand](understanding.md) them entirely. This means the general spectrum of opinion on the ideal way to approach markets ranges from complete "centralized planning" to completely permitting "emergent order". Most of this boils to how economists believe people make [decisions](people-decisions.md) and how easily [power](power.md) can shift. Centralized planning (aka "redistributionists") is when people are given [control](power.md) of various aspects of society. The prevailing [belief](understanding-certainty.md) is that [experts](jobs-specialization.md) should manage everything. However, most real-life central planners are politicians and bureaucrats. Emergent order (aka "growthist" or "supply side economics") is when each person is given freedom to manage themselves. The prevailing belief is that self-interested individuals will [pursue](purpose.md) their self-interest if they're given freedom to benefit from it. From the outside, emergent order appears as a chaotic swarm of unrelated individuals doing unrelated things. But it's an organized type of chaos that somehow works, even though it's difficult to [measure](math.md). Many [leaders](groups-large.md) believe individuals can't correctly decide their long-term best interests, but those leaders are as prone to human error as their subjects. The world is far too complicated and chaotic for professionals to manage everything. Complete emergent order would be complete anarchy, though, because no central leadership structure would enforce any large-scale [rules](people-rules.md). At the farthest end of supply side economics is laissez-faire ("allow to do"), which implies that government intervention should be *completely* absent from private organizations' affairs. This can frequently create [monopolies](politics-monopolies.md) and [bad systems](mgmt-badsystems.md), though it's a *highly* contentious question about whether monopolies persist indefinitely or decay quickly. Centralized planning taken to its farthest becomes fascism or [communism](politics-leftism.md). So far, it's always failed spectacularly. Most free countries mix supply side and redistributionism together. A tax system, for example, is centralized planning responding to emergent order, at least until it becomes [social engineering](rules-methods.md). [History](stories-storytellers.md) has shown that overly rigid government involvement will cause chaos and disorder when people are pushed far enough. To avoid a [coup or war](people-conflicts-war.md), people need at least some freedom to make [decisions](people-decisions.md), even if they're bad. Economic theory uses the example of a mythical "crusonia plant", which produces increasingly more of itself over time. The plant would increase its collective value over time, and therefore better than the effort of creating individual plants. However, this increased value only extends as far as core [needs](purpose.md) dictate, and additional plant production beyond that point would *decrease* the individual value of each plant. Whether it's [anthropology](people-culture.md) or [technology](technology.md), this is a major oversight in most [forecasting](imagination.md) models. ## Conflicts One of the most hotly contested [ideological](values.md) [battles](conflicts-inner.md) within the domain of economics ties to the battle over how people make [decisions](people-decisions.md), and they tend to fall into two major camps with vastly different [political consequences](politics-conservativeliberal.md). Proponents of John Maynard Keynes tend to believe that output and production are generally fixed realities of individuals, determined by their social context. Further, we can most effectively measure a society's wealth by spending. For that reason, further social engineering (and large-scale [government intervention](groups-large.md)) is the solution to most economic issues. Friedrich Hayek's values, on the other hand, adhere to the belief that output and production are *completely* based on individual perception and [personality](personality.md), with the best measurement of a society's wealth coming through how well they [save money](money-3_budget.md). For that reason, less government intervention is critical to solving most economic issues. APPLICATION: Anyone who praises how well capitalism works should have some awareness that it only works because of the selfish [moral state](morality.md) of [human nature](humanity.md). It proves how despicable our natural state is and should lead us to some level of individual repentance. It tends to create [class divisions](classes.md) as an inherent nature, and the weakest or least qualified will often suffer under capitalist societies that honor the presence of the free market. Unfortunately, [all other alternatives](politics-systems.md) are worse. ## Additional reading [Building an economy simulator from scratch](https://thomassimon.dev/ps/4) - a reductionist computer simulation from the ground up