What is the essence of the economy? Despite what you’ve heard from the presidential candidates, the answer is trade and specialization.
Ever since spear-makers traded spears for meat from hunters, people have found that they can increase their well-being by specializing in what they are good at and trading for things they’re not good at. Through this economic system, humans can come as close as possible to satisfying their unlimited desires with their limited capabilities.
In the Learn Liberty video below, Professor Antony Davies and Erika Davies explain that one of the principles underlying economics is that humans behave rationally to enhance their happiness.
But how does this premise account for people smoking or procrastinating? Davies and Davies answer that often what appears irrational to an observer may be rational to the doer. Partying now and paying later may be a risk worth taking for some. For others, working ahead and enjoying themselves later is paramount.
Such differences in human action are a form of specialization that also allow the economy to flourish.
We owe our incredible standard of living to such timeless principles. We forget them at our own peril.