How We Do Economics Today

Abstract

We start with a definition of economics: it is derived from the Greek oikos, meaning pertaining to the household, so economics is the study of household management Aristotle wrote of this in his Politics. Wise household management, even if the household comprises the entire state, is part of natural law. But for Aristotle, and those who followed his philosophical lead long into the medieval period, chrematistics, or producing and lending money for profit, was unnatural. Economic thought has changed a great deal since ancient and medieval times! Curiously ecology starts there too, although the ecologist’s household can often be much larger. If you think about economics in your day-to-day life, you are probably thinking about providing yourself with the necessities of life (and hopefully a few amenities), that is, the basic stuff you need to survive and, hopefully, be happy. Often you need to think about the trade-offs that exist between the choices you have, a hamburger and no movie vs. Ramen soup and a movie, tuition vs. rent or a vacation, or how to budget whatever financial resources that you have to meet your needs and wants. Many elderly people of limited means must consider the trade-off between food and health care. Hence in very basic perspective, economics is about choice: how much we have and how we should decide among alternatives. Of course, economics pays a lot of attention to money, and a basic starting point for economic thought is that almost everything of concern to humans has a price and can be bought or sold for money. A starting assumption of mainstream economics is that the value of something is represented by its price.