Human Action and Economics

It is important to understand the context and the scope of the science of economics. It is a common misconception that economics is a science that primarily deals with maths, numbers, statistics, averages, medians, and charts. Myriad university professors all across the globe teach students about supply and demand curves and how to calculate market equilibrium through the derivative of those, and perform many other numbers games.

All this accomplishes nothing but to obfuscate the true essence of economics. Little attention is paid to important concepts, such value and time preference, the formation of prices, the importance of consumption goods vs. factors of production, the concepts of money and monetary policy.

All market data is nothing but the outcome of actions performed by individuals, cooperating, producing, consuming, and competing on the market. Economics is first and foremost a science of human action, so before embarking upon an analysis of statistical data and mathematical concepts it is indispensable to understand the motivating forces behind actions performed by humans. Those have been fully explained by Praxeology.

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The Objectives of Economic Policy

It is important to point out again and again the ultimate objectives of economic policy. Economic policy comprises all actions taken by a government‘s bureaucracy that have an impact on market data.

Goods, that is land, factors of production, consumer goods, and media of exchange on planet earth are limited. These scarce goods need to be utilized in a manner so as to satisfy the most urgent needs of the largest number of people at any given point in time. But every individual aims at different objectives and prefers different goods. What he prefers to what and by how much is determined by his value preference.

Prices on the market put into relation and reconcile different individuals’ value preferences, interest rates accomplish the same for differing time preferences. On the market different actors have a natural incentive to attain an optimum utilization of all goods. If there are factors of production that are not being utilized in lines of production where they satisfy the most urgent consumer needs or the needs of the largest number of consumers, opportunities to reap an entrepreneurial profit arise. Entrepreneurs have an incentive to withdraw those factors of production and put them into new lines of production where they produce goods that satisfy more urgent or simply a higher number of consumption demands.

The ultimate objective is to reach the theoretical state of market equilibrium where no further demands need to be satisfied. The market enables individuals and goods to be allocated in a way so as to move toward this market equilibrium. It shall hence be the objective of economic policy to do everything that enables the market to move as quickly as possible and as closely as possible toward the state of market equilibrium.

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