In a comment, Nithya asked what do economists do. What economists do is hard to define precisely. Just as one may ask what do doctors do. Clearly they provide medical services. But that could mean a lot of things: internal medicine, surgery, pediatrics, primary medical care, etc., etc.
Economists also come in a variety of forms. Some work on broad big questions such as why are some nations rich, some work on narrow issues like what are optimal subsidies and taxes, some on macroeconomic matters like inflation, unemployment, banking and finance, and so on.
The subject matter of economics, in the ultimate analysis, is people. Therefore everything that humans do — everything — falls into the purview of economics.
Economics is about what everybody does. The central axiom of economics is that people behave purposefully. It’s an axiom because it is trivially true. It’s truth doesn’t have to be proved.
People have noted regularities and codified them. Economics tries to explain human behavior. Economics is an explanatory science, not a predictive science. Certainly, economics helps in predicting how people will behave but only in the limited sense of pattern predictions, not exact predictions like the kind that hard sciences make about the world of inanimate objects.
Humans behave predictably. We just don’t know enough about the specifics of a particular individual to fully predict how he will behave at a specific instant in time. However, we can predict with some confidence how a person will behave generally, and with a lot of confidence of how a large group will behave.
Economics is “the science of human action based on deductive logic.” It is “not about the amassing of data, but rather about the verbal elucidation of universal facts (for example, wants are unlimited, means are scarce) and their logical implications.”
If there were no people, there would be no economy and no economics. Consider an uninhabited continent with flora and fauna, with lakes and rivers, and minerals and mountains — in short everything except people. Because it has no people, it does not have an economy. But put even one person on it — Robinson Crusoe — and it becomes an economy. Suddenly you can talk about choices and trade offs, about production and consumption, about savings and investments, etc. Everything except one thing: exchange.
The focus is on human behavior and not on resources. Humans produce, consume and trade. Production requires resources — so the interest in resources is a “derived” interest. Humans attempt to maximize their “satisfaction” by optimally using the resources they have at hand. There are constraints under which this is done.
Which means that choices have to be made, both for production and consumption. You cannot have it all. You can eat your cake or have your cake — but not both. Anything we do comes at a cost — which is that we have to forego the opportunity of doing something else.
Economics is the study of opportunity costs. That’s one of the most compact definitions of economics. Economics is the study of humans making choices, individually and collectively. There’s strategic interactions between the choices that people make. Thus game theory is a very important tool used to analyze human choice. Later we will read a bit of game theory.
Paul Samuelson defined it thusly in his famous textbook Economics:
Economics is the study of how people and society end up choosing, with or without the use of money, to employ scarce productive resources that could have alternative uses–to produce various commodities and distribute them for consumption, now or in the future, among various persons and groups in society. Economics analyzes the costs and the benefits of improving patterns of resource use.
Samuelson (1915 -2009) had an enormous influence on the teaching of economics in the US because his textbook was the standard. But I think that economics is not simply about choice. I follow James Buchanan. He held that economics is about exchange. Why he rejected Samuelson’s definition is beyond the scope of this post.
So that’s what is economics and that’s what economists do. In the next bit, I would address a related idea. What should economists do?