Capitalistic Musings | Page 4

linear order and justice administered by
some supreme, transcendental principle is restored.
This sense of "law and order" is further enhanced when the theory
yields predictions which come true, either because they are
self-fulfilling or because some real "law", or pattern, has emerged. Alas,
this happens rarely. As "The Economist" notes gloomily, economists
have the most disheartening record of failed predictions - and
prescriptions.
The Misconception of Scarcity
By: Dr. Sam Vaknin
Also published by United Press International (UPI)
Are we confronted merely with a bear market in stocks - or is it the first
phase of a global contraction of the magnitude of the Great Depression?
The answer overwhelmingly depends on how we understand scarcity.
It will be only a mild overstatement to say that the science of
economics, such as it is, revolves around the Malthusian concept of
scarcity. Our infinite wants, the finiteness of our resources and the bad
job we too often make of allocating them efficiently and optimally -
lead to mismatches between supply and demand. We are forever forced
to choose between opportunities, between alternative uses of resources,
painfully mindful of their costs.

This is how the perennial textbook "Economics" (seventeenth edition),
authored by Nobel prizewinner Paul Samuelson and William Nordhaus,
defines the dismal science:
"Economics is the study of how societies use scarce resources to
produce valuable commodities and distribute them among different
people".
The classical concept of scarcity - unlimited wants vs. limited resources
- is lacking. Anticipating much-feared scarcity encourages hoarding
which engenders the very evil it was meant to fend off. Ideas and
knowledge - inputs as important as land and water - are not subject to
scarcity, as work done by Nobel laureate Robert Solow and, more
importantly, by Paul Romer, an economist from the University of
California at Berkeley, clearly demonstrates. Additionally, it is useful
to distinguish natural from synthetic resources.
The scarcity of most natural resources (a type of "external scarcity") is
only theoretical at present. Granted, many resources are unevenly
distributed and badly managed. But this is man-made ("internal")
scarcity and can be undone by Man. It is truer to assume, for practical
purposes, that most natural resources - when not egregiously abused
and when freely priced - are infinite rather than scarce. The
anthropologist Marshall Sahlins discovered that primitive peoples he
has studied had no concept of "scarcity" - only of "satiety". He called
them the first "affluent societies".
This is because, fortunately, the number of people on Earth is finite -
and manageable - while most resources can either be replenished or
substituted. Alarmist claims to the contrary by environmentalists have
been convincingly debunked by the likes of Bjorn Lomborg, author of
"The Skeptical Environmentalist".
Equally, it is true that manufactured goods, agricultural produce,
money, and services are scarce. The number of industrialists, service
providers, or farmers is limited - as is their life span. The quantities of
raw materials, machinery and plant are constrained. Contrary to classic
economic teaching, human wants are limited - only so many people
exist at any given time and not all them desire everything all the time.
But, even so, the demand for man-made goods and services far exceeds
the supply.
Scarcity is the attribute of a "closed" economic universe. But it can be

alleviated either by increasing the supply of goods and services (and
human beings) - or by improving the efficiency of the allocation of
economic resources. Technology and innovation are supposed to
achieve the former - rational governance, free trade, and free markets
the latter.
The telegraph, the telephone, electricity, the train, the car, the
agricultural revolution, information technology and, now,
biotechnology have all increased our resources, seemingly ex nihilo.
This multiplication of wherewithal falsified all apocalyptic Malthusian
scenarios hitherto. Operations research, mathematical modeling,
transparent decision making, free trade, and professional management -
help better allocate these increased resources to yield optimal results.
Markets are supposed to regulate scarcity by storing information about
our wants and needs. Markets harmonize supply and demand. They do
so through the price mechanism. Money is, thus, a unit of information
and a conveyor or conduit of the price signal - as well as a store of
value and a means of exchange.
Markets and scarcity are intimately related. The former would be
rendered irrelevant and unnecessary in the absence of the latter. Assets
increase in value in line with their scarcity - i.e., in line with either
increasing demand or decreasing supply. When scarcity decreases - i.e.,
when demand drops or supply surges - asset prices collapse. When a
resource is thought to be infinitely abundant (e.g., air) - its price is zero.
Armed with these simple and intuitive observations, we can now
survey the dismal economic landscape.
The abolition of scarcity was a pillar of the paradigm shift to the