Everyone can benefit from a knowledge of economics. Economics is powerful science. To support that assertion, we could simply cite the $US86 Trillion global economy. It has grown and grown – 3000% in 200 years to cite one estimate by Professor Deirdre McCloskey – because we all learned, and started to talk to each other about, economics. The term the Professor prefers is not economics but “ values” – the ethics of commerce.
Now, that doesn’t sound much like the statistics and curves and lines and graphs of GDP projections, money supply, trade balances, employment participation rates and government policy prescriptions. Those, we are told today, are the proper subjects of economic study and the products of economic knowledge.
But we are being led astray by the consultants and bureaucrats and Federal Reserve employees who conduct that level of aggregate economics for their own purposes. Everyday Americans, both as consumers and producers, are helped in making good decisions by an entirely different brand of economics.
Let’s call this brand of economics Individual Economics. The unit of analysis is the individual, not the grand aggregates of Gross Domestic Product and the like. Every individual plays two economic roles, as consumer and producer. In these roles, every individual is involved in transactions or exchanges. What individual economics has discovered is that, for an exchange to take place, each party to it must feel that they are benefitting. An exchange is mutually beneficial. Economics is never about exploitation, and always about shared betterment. “Give me that which I want, and you shall have this which you want, is the meaning” of every exchange, as Adam Smith, often quoted as the father of economics, put it. Economics is collaboration, and it’s what gives us the good life, rather than the dog’s life. (“Nobody ever saw a dog make a fair and deliberate exchange of one bone for another with another dog” as Adam Smith declared.) Or, as we might say, economics is more about the wealth of the individual than the wealth of nations.
Means and Ends
How does individual economics help us make the good decisions that result in wealth? Through a minute study of individual ends and individual means. Ends are goals, objectives, aspirations. It’s important to choose them wisely and not get misled by unachievable ambitions. No-one can choose for you. Economics can help you understand what’s possible, but it doesn’t constrain you. Where it really helps is on the subject of means – which means are the best ones to choose to reach the goals you have set for yourself. Economics helps with both cause and effect – identifying what is the most likely outcome of choosing one means versus another – and the analysis of opportunity cost: if I choose this means, what alternative choice am I giving up, and have I weighed all the consequences properly? In individual economics, the future is always uncertain, and we don’t try to predict; but we can achieve good decision-making using available information and sound decision processes.
As the consumer, you are the boss.
The captain of the economic ship is not the President, or the Chairman of the Federal Reserve, or a billionaire CEO like Jeff Bezos. The captain of the ship is the individual consumer. The consumer determines what is produced and what sells well. How? By buying or not buying. If the consumer buys a certain good, more of that good will be produced. If the consumer stops buying, the production line shuts down, the brand dies, the company closes. If the consumer never bought in the first place, even the most splashy new product launch with all its glitzy advertising and celebrity endorsements will fail. As individuals, we can exercise immense market power.
Not only do we have the power of life and death over brands and products, as individual consumers we are co-creators of the products that serve us. By exchanging information with producers, we influence their decisions about what to produce. The information we provide might be direct commentary, like leaving a Yelp or amazon review, or an indirect indication about what we’re interested in, such as the clickstream we leave on the internet.
The most powerful individual tool we have as consumers is dissatisfaction. If we express it, the entire entrepreneurial production system is geared to find out what we’re dissatisfied about and how to make us happier through innovation, better service, lower prices or some act of betterment. By being dissatisfied at all times, we can drive economic growth through innovative new solutions. Our power as consumers is undiminished.
As Producer, You Are A Do-Gooder.
We are all both consumers and producers. Through the complex global network of interconnected specialization, we all collaboratively contribute what we’re individually best at to the world production system. Together, we produce food and fertilizer, houses and furniture, laptops and computer chips, credit cards and financial services, healthcare, entertainment, schools and ships and cars and concrete. Individually, we produce the work and the thinking and collaboration and connecting that go into these outputs.
The purpose of all this production is betterment for others. If what you are producing improves their lives, they’ll buy, subscribe, join and click. If not, they won’t, and you and your collaborators will stop producing it and move on to something else that’s better received. The goal is not production for its own sake, but production to improve lives. All the feedback loops reinforce this virtuous circle. By producing, you are doing good. You’re a do-gooder. Try hard to produce more.
How you feel is what you get.
How do individuals decide what to consume and what to produce? The answer lies in the economic concept of subjective value. We each produce and consume in order to experience value. Note the word experience. Value is a feeling. It’s in your own head. It’s unique to you. It’s idiosyncratic. What feels valuable to you today may not feel valuable tomorrow.
Despite what the business schools and business books tell us, corporations can’t create value or add value. That sounds like engineering, an objective science. Corporations – or at least the people working for them and the parts of the capital structure that come into contact with customers – can make it possible for individual consumers to enjoy a value experience. Will they succeed? It depends how the customer feels on any given day. Will corporations be successful in energizing their employees and harnessing their energy and commitment? It depends on how the employee feels.
Money has little to do with value. You can’t feel money. Money is not an experience.
Fitting In And Contributing.
We are individuals, pursuing our own ends, choosing our own means, producing and consuming according to our own values. But we are not atomistic loners. We are part of a system, comprising the interactions of many individuals each pursuing their own competent goal-oriented activities. We have learned over time that collaboration in these interactions is more productive for everyone than antagonism. In fact, the economic idea of competition is a collaborative concept: multiple producers rivalrously pursuing the best ideas to improve the lives of our fellow men and women.
Our economic actions are directed at identifying for ourselves the best way to fit in to the system – finding the most valuable specialization for which others will reward us. When we find this role, we are contributing to the system in the most productive way we can. It’s a generous act of imagination to identify the future value creation of which we are capable, and to prepare for it now. For some, the contribution is rewarded with great wealth, for others it’s social recognition, and for most of us it’s the quiet satisfaction that we did our best.
Out of all of these individual contributions, there emerges a growing economy – 3000% in 200 years – a flourishing society, and an elevated civilization. Our understanding of emergence is most important. These complex systems to which we all contribute – economy, society, civilization – can not be designed or planned or ruled or directed. They emerge as the consequence of the behaviors of each one of us.
The Idea Of Emergence.
Most academic and professional economists prefer to think of the economy as a machine, and themselves as engineers. They can compose equations that tell them how the machine can perform. If they modify the equations, they can make it perform better on paper, and if they modify the engine itself through government policy, they can make it perform better in practice.
All this is rubbish. The economy is simply all individuals, acting as producers and consumers, and interacting and exchanging with each other. Each individual in each interaction is making their own decisions based on their own values and preferences. Every one of us is different, and every transaction is different, and we’ll each feel differently tomorrow than we feel today. This can’t be modeled and government policy intervention can’t possibly result in predictable change, only in error and confusion.
How does the economic growth we prize so much – the 3000% in 200 years – happen? Through the process we call emergence. It just happens – as a result of the hard work and good intentions and personal choices of individuals. Scientists understand this phenomenon. Complex systems, they say, have emergent properties. It’s impossible to direct the outcome of complex systems, or to tinker with them to try to influence outcomes. All that can be done is to make sure they are working with beneficent general rules. The emergent growth of free-market economic systems results from the general rule of individuals being free to make their own choices, to try new ideas to innovate and improve, and to ‘truck, barter and exchange” as Adam Smith put it.
The Transition To Individual Economics.
The world, and each of us in it, would be much improved if Individual Economics were to become the dominant form to be taught in school and university, and to inform the efforts of every producer and every consumer. The opposite form – mainstream economics or government economics – is dominant today. We will attempt to influence this imbalance with more articles explaining the elements of Individual Economics.
We are not breaking new academic ground. There is a highly-researched, fully developed, historically significant form of economics known as Austrian economics, because of the geographical origins of its founders in Vienna. The Austrian school of economics is largely ignored today. People’s mental imagery immediately leaps to the country of Austria when Austrian economics is mentioned. So it’s appropriate for the Center For Individualism to re-christen this school with the term Individual Economics. We are all individuals, and so we are all Austrians.