Despite what we may hear from mainstream economists, the study of economics is by and large for and about the individual.
Each time we are confronted with economists in the media, we are bombarded with charts and graphs and overly-complicated terms all meant to make us feel as though we need these “experts” to understand economic concepts like production, consumption, and the transfer of wealth. But this is hardly the case. And while these experts will often make us feel like the sky is falling unless we follow their advice, much of this is just a sign of elitism and a love of central planning.
As Hunter Hastings writes:
“We are taught in school that economics is about grand aggregations of statistics like Gross Domestic Product, and the employment level, and the inflation rate, and how government designs and implements policies to affect these aggregates. That’s just an excuse for government intervention, regulation, taxation, and the continued employment of economists as policy advisors.”
In reality, economics is not, or at least should not be, about central planning or policy that serves the “collective good,” because if we are honest with ourselves, there is no way to identify the wants and needs of groups of people. We can only identify the wants and needs of each individual actor, which is why all economic decision-making must begin with the individual human being — a concept lost on many state actors.
Unfortunately, many economists make the mistake of looking at economics in terms of the collective, forgetting that the individual is the basis for which all things are possible. And that groups of people are, in reality, not a tangible unit of measurement.
Economics is very much a social science that looks at how producers and consumers interact with one another to best meet each other’s needs. But these interactions happen on the individual level. And unless we start small, observing the individual’s role in this process, we cannot hope to understand the economy as a whole.
For producers to adequately determine the needs of the consumer, they must understand the wants and needs of the individual consumer first. After all, there can be no collective without the individual units of which it is comprised.
In economic terms, this is described as methodological individualism, which is the theory that explains that “social and economic phenomena can be explained by reference to the actions of individuals rather than groups or collectives.”
Elaborating on this, Libertarianism.org explains that this theory:
“…does not claim that only the individual human being is real or that social phenomena do not exist. It simply holds that the individual human being alone is able to think, feel, and act. We can impute actions, purposes, and values only to individuals; when we apply these terms to society, we enter the domain of metaphor.”
While this theory was originally developed by Joseph Schumpeter, it was his predecessor, Carl Menger, who founded the Austrian school of economics, who truly originated the idea. In 1889, he wrote, “There is no economic phenomenon that does not ultimately find its origin and measure in the economically acting human and his economic deliberations.”
Health Care Policy
There is, perhaps, no greater example of how detrimental it is to view economic policy in terms of the collective, rather than the individual, than health care. The entire premise for Obamacare and other versions of universal medicine are based on the presumption that the collective good is more important than the individual.
But, in reality, this “collective good” does not actually exist. And by assuming that the best health care policies must be crafted on the basis of what is good for groups of people instead of what each individual health care consumer wants and needs, you cannot logically hope to make any progress in this field.
It is for this reason that these policies have been such a failure. The government assumes that cost is the bottom line for health care consumers and have operated on this premise. Cost is one component in an individual’s hierarchy of needs, but there are many more elements, especially when there is urgent need for care. Focusing exclusively on cost completely negates the subjective wants of each individual person. No state apparatus can determine this for the collective. Only the producer, working in tandem with the consumer, can create options that truly fulfill their needs.
It is for this reason that we have seen the rise in services like direct pay care, where physicians take out the middleman, whether that be an insurance provider, government, or both, and instead work with actual patients to agree on the cost of care and what services are valued the most. Once producers work with individual consumers to better understand these wants, this concept can be expanded to include more individuals. But it is important to note that even large groups of people are really just several individual units. This idea that as a collective we think and act as one is not only wrong, but it greatly distorts the market process. There is no collective, there are only individuals, and when economists ignore this most important fact it is at their own peril.
As sociologist Georg Simmel said, “Groping for something tangible, we found only individuals and between them nothing but empty space.”
Also published on Medium.