1.1 What is economics?
The word 'economics' comes from two Greek words, 'eco' meaning home and 'nomos' meaning accounts. The subject has developed from being about how to keep the family accounts into the wide-ranging subject of today.
Economics has grown in scope, very slowly up to the 19th century, but at an accelerating rate ever since. Today it has many of the features of a language. It has linguistic roots, grammatical rules, good and bad constructions, dialects and a wide vocabulary which grows and changes over time. You may already have studied economics and there is the danger that the language that you learnt has changed, so be careful! Also, there are different ways of learning economics.
One of the founding fathers of economics, Alfred Marshall, advised as follows:
Every short statement about economics is misleading (with the possible exception of my present one).
Nevertheless, definitions are a useful place to begin. A standard definition of economics could describe it as:
a social science directed at the satisfaction of needs and wants through the allocation of scarce resources which have alternative uses
We can go further to state that:
- economics is about the study of scarcity and choice
- economics finds ways of reconciling unlimited wants with limited resources
- economics explains the problems of living in communities in terms of the underlying resource costs and consumer benefits
- economics is about the co-ordination of activities which result from specialisation
By extension of our basic definition, economics as applied to agricultural and environmental issues is concerned with the efficient allocation of natural resources to maximise the welfare of society.
There is an obvious need to understand the economics behind the decisions facing the individual farmer, firm or resource owner, but it is also important to have an appreciation of the bigger picture in terms of agriculture and the environment's impact on the domestic economy as a whole, as well as its impact in an international context. The economics of the individual agent's decisions about resources is referred to as microeconomics, while macroeconomics studies the interactions in the economy as a whole. Our focus here is on microeconomic theory.
The role of economics
Resources are finite, and people and governments must make choices. By studying the way that people make choices, the better choices we make!
Economics has quite an extensive role to play in a multitude of contexts, particularly in solving agricultural and environmental problems. For example, it has much to contribute to improved policies for the efficient targeting of agricultural subsidies, the control of pollution and the depletion of natural resources.
A pervasive view of the role of economics for the environment is that:
'The widespread concern over the current state of the environment and the limited success of existing policy have generated renewed interest in the effectiveness of alternative approaches to environmental protection. It is our sense that a wider use of economic incentives can significantly increase the effectiveness of measures for pollution control both in terms of attaining our environmental targets and in doing so with enormous cost-savings relative to current command-and-control policies'
Source: Baumol and Oates (1988) p. 3.
A simplified way of seeing the roles of economists is as: fixers, bean-counters and philosophers. Fixers make a living solving problems - problems faced by government, business, charities, all sorts of organisations. Bean-counters make a living doing just that, calculating costs, comparing them with prices and the values offered to buyers. Philosophers like to play with ideas, and only occasionally enter the fray with a suggested answer to a problem.
How do you see yourself, a fixer, a bean-counter or a philosopher?
Your answer will largely determine which parts economics you will find interesting, and which will irritate you the most!
However, it's not really that simple. Economists may play more than one role. So no-one is entirely one thing or the other. Just remember, different objectives lead to a different treatment of economics.