A Simple Explanation: What Is The Economy

Can you answer the question, “what is the purpose of the economy?” Many people struggle to identify something which should be obvious. Some people associate the economy with greed or control though it hardly evolved for the benefit of a few. As a general answer, the economy is a tool. The purpose of this tool is to provide for the needs of everybody. As with any tool, some people will operate it with better skill than others. However, as soon as some people use this tool to deprive people of their needs, it is no longer being used correctly or justly. These actions must be punished or prevented.

At this point some people would argue that there is nothing wrong with finding a new use for a tool. However that argument falls apart when faced with a person who realizes their hunting rifle can be used to kill somebody and take their wealth. This new use of the tool would be wrong even though it is functioning correctly. So it is with the economy. The economy as a tool has only one use: to meet the needs of everybody who participates in it. When this purpose is no longer met, then the tool is malfunctioning and must be repaired. This is the current condition of the United States economy.

Allow me to present an example.

An economy is like a car. For example, a car is an aggregate of numerous inventions and innovations that span thousands of years: wheels and glass being the oldest while the combustion engine and the seat belt are more recent additions. Nonetheless, the thing we know as a car could not exist without most of the components that comprise it. The economy is no different. Some of its oldest technologies are currency and credit while more modern elements are the free market and externalities. Nonetheless, the thing we think of as the economy would not exist without all of these innovations. Both the car and the economy have been designed to integrate their various parts. Therefore we know that the car could not have come to existence without the action of humans. The same can be said for the economy: it is not an autonomous and independent entity, rather it is the product of human action and innovation.

In our example the car is full of groceries. We want the car to make it home with the groceries so that we can eat and survive. However at present we find the car and flying down a residential street with no driver. As we imagine this is a dangerous situation and the car careens from left to right, damaging property and hurting innocent people on the sidelines. There is no guarantee that this car will make it home to deliver the groceries. Furthermore, if it does can we justify all the people that were harmed and the property destroyed to accomplish this delivery? Obviously our goal is to not destroy the car, to not destroy other people’s lives and property, and to deliver the groceries so that we can eat them and survive. Clearly there are two primary solutions: abandon the car and allow somebody else to deliver the groceries to us, or drive the car ourselves and take responsibility for the our own well-being and the well-being of the people and property we pass along the way.

I hope this metaphor is not too ambiguous. The car is the economy. The groceries are all the things that we rely on the economy to deliver. The people and property along the road are the nations and environment that we must interact with in our efforts to ensure the economy can deliver the goods. So, the next question is, “how do we take control of the car?” The reactionary person who has deified the economy will say that any call for planning the economy is anathema and sinful. Luckily, this is not a call for the planning of the economy. The person driving the car in our example has not designed the car, rather this person is only guiding it. So, if we translate this idea then we come to the conclusion that there must be a force that gives the car a destination.

Again, our reactionary skeptic might jump to conclusions and say that this is a call for bureaucratic regulation of the economy which will kill innovation and stifle individual sectors. For the most part this is no such thing. As you may recall from the beginning of this piece we clearly stated that the purpose of the economy is to meet the needs of all the people who participate in it. In addition to this, our metaphor has revealed there is more to the economy than just meeting our needs. For example, when driving a car we have a responsibility and an obligation to not harm the people and property around us. The same is true of the economy. In order to allow our economy -our tool- to function correctly we must acknowledge the responsibilities attached to it. The use of the economy must not harm the world it operates in or the people who are not participating in it, or to be more specific, the economy must not be used to destroy the environment or the rights and lives of the people of other nations.

One glimpse at contemporary news reports and you will find that this is not the current ideology behind the economy. The housing bubble burst and consequent recession will speak to that while US intervention in places like Iraq and Libya demonstrate that financial and resource interests in wealth of other nations are held in higher regard than respect for the sovereign rights of their lives and property. Such irresponsible use of the our tool -the economy- is not practical or sustainable. If you killed somebody with your car, you could keep driving but eventually you would face consequences. The same can be said of our irresponsible use of the economy.

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