By Wallace Garneau – America Out Loud
If you really want to have an interesting conversation, ask someone what they think an economy is for or what they believe the purpose of an economy is.
One answer you’ll hear is something along the lines of “to ensure that available resources are used optimally by minimizing costs and maximizing benefits.” Another answer you’ll hear is something along the lines of “to feed and clothe the people” or “to take care of the people’s basic needs.”Perhaps you’ll hear the only slightly less idiotic, “to decide how scarce resources are used so that goods and services can be produced and consumed.”You might even hear, “to oversee the organization of goods and services in terms of production, distribution, and consumption.”
Any of these, along with a million variations of each, can be found in any college-level macroeconomic textbook. All of those answers are wrong. Truth be told, I have never seen the correct answer in any textbook unless you consider Thomas Sowell’s Basic Economics to be a textbook (which it should be, but I have never seen it used as one).
The truth is that an economy has no central purpose. Assigning a central purpose to an economy completely loses sight of what exactly an economy is.
If you look in the dictionary, the relevant definition for the word ‘economy’ will sound something like “the wealth and resources of a country or region, especially in terms of the production and consumption of goods and services.”Sadly, while that really is what dictionaries say, it’s not a very good definition. Here is a better one: “Everything everyone does within a given country or region, especially in terms of the production and consumption of goods and services.”
Note, too, that the ‘especially’ part is redundant, as everything we do relates to the production and consumption of goods and services. Even when we sleep, we gradually wear out our pillows and sheets, slowly consuming them such that they will eventually have to be replaced. As such, the simplest correct definition for the word ‘economy’ would be ‘the aggregate of everything everyone in a given country or region does.’
And this means, by extension, that when governments seek to control the economy, what they really seek to control are the people.
We collectively are the economy.
There will always be some legitimate government activity related to the economy. To me, the question is not one of ‘how much’ the government should be in the economy but rather what kinds of things the government should do in relation to the economy.
Some of the things governments are supposed to do will drive economic activity, such as buying and equipping aircraft carriers, but when it comes to regulating the economy, or more to the point, when it comes to regulating the companies and people acting within the economy, the government only has two legitimate purposes:
- To promote and protect the efficiency of the markets, and
- To provide for those legitimate societal needs that run counter to market efficiencies.
The first role is fairly straightforward. Markets tend to move toward higher levels of efficiency over time on their own, but in a truly efficient market, consumers know as much about products as producers do. Government has a role in enforcing truth in advertising laws, as doing so helps make markets more efficient. Government has a role in ensuring that consumers know the risks of using different products. The government can make sure companies use weights and measures accurately such that when you buy a gallon of gasoline, it really is a gallon. Government provides currency to act as a stable holder of agreed-upon value. These are but examples of things the government does to make the economy more efficient, and where the government can make markets more efficient, it should do so.
