Economics – How It All Fits
Economics is the study of the way in which groups of people use resources to satisfy their wants. Our wants are many and varied. We all want food, clothing, shelter, transportation, pleasure and entertainment. But, the problem is most of us want much more beyond the basics.
We want such things as new cars, cable television and tickets to a ball game! In fact our capacity to want seems to be almost unlimited! The thing is, our incomes are usually much too small to buy everything…we would like to have. This gap between what people would like to have and what they are able to get…is the basic problem studied in economics.
One sure way to narrow this gap would be for each of us to want less or be content with little. Another way would be for each of us, would be for all to produce more. The economist cannot say which is better.
Production is the uses of resources to create things which satisfy human wants. It includes not only creating things in the sense of raising wheat, but doing everything else which enables the product or good to satisfy wants. Transporting the wheat to market, grinding the flour, baking the bread, selling the bread. Every act which increases the ability of goods to satisfy wants…is a part of production.
The basic resources’ used in production are the human beings who contribute their labor and the resources provided by nature. Thus, we have human resources’ and we have natural resources. The earliest men used natural’s resources by merely gathering plants or hunting the animals that they knew how to use for food. This was hard work then, but it was more like finding than producing.
Later men learned to till the fields and raise plants on purpose and to tame the animals. Also they found that if they spent some time making tools, carts and so forth, they could produce more…of the things they wanted. This means they were using capital.
Capital does not refer to money alone. It refers to goods which are not used to satisfy wants directly, but instead are used in producing other goods which do satisfy wants directly. The giant blast furnaces in the steel mills, the tractors and combines on the farms and the expensive manufacturing plants are part of the great stock of goods used as capital in modern economics.
With the use of more complex capital-using methods of production a need for a special type of labor became evident. Men were needed to collect, organize and manage the resources used in production. This special type of labor is usually called management or entrepreneurship. Economics usually add both capital and management to the list of resources and speak of four types of resources: land, (meaning all natural resources) labor, capital and management. The income received by the owners of each type of resource is called in order: rent, wages, interest and profit.
