Sowell on Scarcity

by Russ Roberts on May 10, 2006

in Standard of Living

Here is Thomas Sowell’s deep insight about economic reality from Basic Economics:

A distinguished British economist named Lionel Robbins gave the classic definition of economics:

Economics is the study of the use of scarce resources which have alternative uses.

What does "scarce" mean? It means that people want more than there is. This may seem like a simple thing, but its implications are often grossly misunderstood, even by highly educated people.


For example, a feature article in the New York Times of August 1, 1999 laid out the economic woes and worries of middle-class Americans—one of the most affluent groups of human being ever to inhabit this planet. Although the story includes a picture of a middle-class family in their own swimming pool, the main headline says: "The American Middle: Just Getting By." Other headings in the article include:

Wishes Deferred and Plans Unmet

Goals That Remain Just Out of Sight

Dogged Saving and Some Luxuries

In short, middle-class Americans’ desires exceed what they can comfortably afford, even though what they already have would be considered unbelievable prosperity by people in many other countries around the world—or even by earlier generations of Americans. Yet both they and the reporter regard them as "just getting by" and a Harvard sociologist spoke of "how budget-constrained these people are." However, it is not something as man-made as a budget which constrains them: Reality constrains them. There has never been enough to satisfy everyone completely. That is what scarcity means.

Although per-capita real income increased 50 percent in just one generation, these middle-class families, "have had to work for their modest gains," according to a Fordham professor quoted in the same article. What a shame they could not get manna from heaven! As for the modesty of their gains, this suggests that people not only adjust their expectations upward with growing prosperity, but also adjust their rhetoric as to what it means to be "just getting by." The New York Times reporter wrote of one of these middle-class families:

After getting over their heads in credit card spending years ago, their finances are now in order. "But if we make a wrong move," Geraldine Frazier said, "the pressure we had from the bills will come back, and that is painful."

To all these people—from academia and journalism, as well as the middle-class people themselves—it apparently seems strange somehow that there should be such a thing as scarcity and that this should imply a need for both productive efforts on their part and personal responsibility in spending. Yet nothing has been more pervasive in the history of the human race than scarcity and all the requirements for economizing that go with scarcity.

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{ 18 comments }

liberty May 10, 2006 at 3:49 pm

The duel concepts of scarcity and non-zero-sum (eg growth from trade and comparative advantage) together allow economists to understand why markets work and socialism does not. And, together with good dynamic models that actually model these concepts, can allow us to understand policy implications and predict unintended consequencs.

Sadly, many economists and most of the public still don't understand these basic concepts.

John Pertz May 10, 2006 at 4:31 pm

The scarcity argument is what made many of Marx's sociological criticisms of capitalism a non starter for me. Its really really hard to take interventionists, socialists, and anyone else opposed to the free market when you take into account Hayek's article on decentralized information, the existence of scarcity, and the inability of public servants to do anything beyond serving their short run interests.

dj superflat May 10, 2006 at 5:37 pm

the definition is lousy — isn't it just saying that economics is the study of the use of resources? you really can't define scarce resources without comparing them to abundant resouces, just as you can't compare existing uses without looking to alternatives, etc. put another way, scarce compared to what? alternative compared to what?

Lance May 10, 2006 at 5:52 pm

dj superflat,

Obviously you don't understand what Sowell and Robbins mean by scarcity. Sowell and Robins point is that everything has scarcity to some extent. Economics is about understanding the questions you pose, what is scarce relative to what. However, everything with a price is scarce. What you call abundance is still scarce, just less so. You have no real beef here. In effect you are saying the same thing.

Steven Donegal May 10, 2006 at 6:07 pm

I'm curious why Prof Boudreaux thinks Sowell has such a deep insight here. In fact, this seems rather trivial if the insight is the last paragraph that is quoted. I think most people understand the concept of scarcity and its implications extremely well. They also allow the past to color and form their expectations of the future, and when those expectations aren't realized, the inclination is to assing the cause to general conditions or to society rather than themselves. I'm not sure there's much new in that.

liberty May 10, 2006 at 7:12 pm

dj superflat,

The reason for saying it is the use of scarce resources is to make clear that resources *are* scarce. In the past some economists (Marx and other socialist economists, for example) sometimes had models that assumed that resources weren't scarce. With that assumption they were able to prove that planning was possible – but you might as well assume that planning is possible and then go about proving it, because they simply took the problems out of the equation. Obviously scarcity is a fact of life, every resource including one's own time must be divided among competiting interests. Any use of any good compees with infinite other possible uses, whether the society recognizes that a choice is being made or not.

Once the economy is modeled with this limitation, other questions begin to surface – how does society make these decisions? SHall they be made centrally or in a distributed manner? How can we know which use is better for a given resource – can price be a measure? Does price hold this information – because of the competing customers demanding the resource and the competing suppliers?

That is why it is so important to recognize the reality of scarcity.

John P. May 10, 2006 at 7:29 pm

Sowell's cranky prose (elsewhere in Basic Econ) was the first to get me to really understand that prices are an emergent phenomenon.

Swimmy May 10, 2006 at 11:44 pm

Steven Donegal:

I'm not so sure the problem of scarcity, by Sowell's definition, is so widely recognized. Everyone recognizes that there are physical limitations to production, true, but not everyone recognizes that our desires will always be greater than any possible non-infinite function of production. I often tell the story of a sociology professor who told the class that capitalism grants "freedom of choice" and socialism gives "freedom from want." But that is resoundingly untrue. We always want.

And this wasn't a novel concept brought up in one class. Hundreds of socialist writers have presupposed that some fundamental change in human nature will take place if we only switch economic systems. For many, capitalism creates greed: the collective goal of MAKING MONEY, above all else, is both less noble and more harmful than, say, a collective goal of taking care of people.

But to presuppose that a person will want, say, a big-screen TV when he's in a capitalist society but won't want it under socialism is absurd.

Murray Rothbard, not one of my favorite economists but certainly an entertaining writer, chronicles a few instances of the idea that the problem of scarcity will disappear under socialism:

'As Engels wrote in his Anti-Dühring, communism would give "each individual the opportunity to develop and exercise all his faculties, physical and mental, in all directions." And Lenin looked forward in 1920 to the "abolition of the division of labor among people…the education, schooling, and training of people with an all-around development and an all-around training, people able to do everything. Communism is marching and must march toward this goal, and will reach it."
. . .
William Godwin thought that, once private property was abolished, man would become immortal. The Marxist theoretician Karl Kautsky asserted that in the future communist society, "a new type of man will arise…a superman…an exalted man." And Leon Trotsky prophesied that under communism:

"man will become incomparably stronger, wiser, finer. His body more harmonious, his movements more rhythmical, his voice more musical…. The human average will rise to the level of an Aristotle, a Goethe, a Marx. Above these other heights new peaks will arise."'

(Original essay here: http://www.lewrockwell.com/rothbard/rothbard31.html )

Chris Meisenzahl May 11, 2006 at 8:10 am

Great post. I think Basic Ecomics is one of the best books written in 30+ years. And perhaps the most "under-read" imho.

dj superflat May 11, 2006 at 2:41 pm

thx for the responses. i'm perhaps focusing too much on the language, but doesn't the term "resource" capture what you're talking about? can something be a resource if it has no value? and can something have value if it isn't scarce by some measure or definition? i'm not trying to be difficult, and i likely should be told to just go read the book. but scarcity seems a problematic term to me. e.g., nothing's scarce if we get rid of all the people on the planet, it's always just a relative measure, defined as much by what people want (if people don't want something, can it really be considered scarce or is there any point to calling it so) as by the actual amount of whatever we're talking about. anyways, i'll shut up now.

Doug May 11, 2006 at 9:54 pm

American families are stressed for one reason – leverage. A mortgage and two car payments (or even just a mortgage) will sink you quickly if you don't have a job!

That's not to say that Dr. Sowell's 'wants > needs' theory isn't true. It's just that leverage makes it REAL.

Trumpit May 12, 2006 at 12:41 am

Does scarcity exist for Bill Gates, Warren Buffet, Oprah or the Walton family? Do their greedy wants exceed their incredible means or needs? The Russian's have the right idea by putting a stinking capitalist anti-social oil pig in jail in Siberia where he belongs. When there's such massive wealth in so few hands, I can understand why this economic scarcity concept is so poorly understood by the general public and by so many supposedly smart economists. Of course there is not enough to go around when 1% owns most everything except for the air, and they're fouling that up, too. Once, I perused a book by Sowell and I thought it was full of right-wing platitudes. Frankly his ideas are weird and dumb. Scarcity exists to a large degree because of the maldistribution of wealth and too many newly-hatched babies born in to poverty. No wonder there's so much anger and discontent in the world. It goes way beyond a cranky and shrinking American middle class.

Swimmy May 12, 2006 at 5:58 am

Trumpit:

You should keep in mind that knowledge is a scarce resource too. Maybe the scarcest.

A lot follows from that. Might I suggest some essays by Friedrich von Hayek?

Morgan May 12, 2006 at 11:57 am

Apparently the term "scarcity" is poorly understood. No surprise there, really. Most people understand terms as they are used in common language, where "a scarcity of food" means there's not enough of it – i.e. that people are starving, or at least undernourished.

It's frustrating, though, when the meaning of the term as it is being used in the discussion is explained in great depth, but no greater understanding results.

I suppose some ideas just aren't worth comprehending. Better to stick to "jail the stinking capitalist anti-social oil pigs." Which makes a lot of sense, because if the government took over Oprah's stinking capitalist media empire, we'd all be rich.

Trumpit May 12, 2006 at 4:46 pm

The anti-social, criminal ones should be tarred and feathered and jailed. I personally would have the Enron gang killed to make an example out of them. As far as Oprah goes, who said the government should run it? Oprah can run it at a reduced salary, if she wants. Who need her anyway, she's just another arrogant talking head. Her shares in her company should be taken away from her and redistributed to the less fortunate or sold off to pay down the enormous national debt. No human being should be allowed to have that kind of wealth whether ill-gotten or not. Allowing that nonsense to continue is far more anti-social that spitting on the sidewalk or dropping your bubblegum on it. The same goes for Bush's evil tax breaks for the rich. A pox on the Whitehouse and his supporters!

Morgan May 12, 2006 at 5:04 pm

Sorry, Trumpit. I didn't get that you were joking until your most recent comment.

tv bracket April 16, 2008 at 4:41 am

Scarcity is quite relative, so that sometimes it make me believe Gandhi's word. "This world is enough for everyone, but will never be enough for one greedy man"

tv bracket April 16, 2008 at 5:54 am

Scarcity is quite relative, so that sometimes it make me believe Gandhi's word. "This world is enough for everyone, but will never be enough for one greedy man"

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