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The Basic Economic Problem - Basic Decisions of an Economy

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THE BASIC ECONOMIC PROBLEM - BASIC DECISIONS OF AN ECONOMY by Ben W. Lewis I believe economic understanding is to be gained through an understanding of the central core of economics that dominates all economic situations and issues—The Economic Problem faced by all societies of men who live and make their living together. We have economic systems or economies because we are confronted by The Economic Problem; economies, all economies irrespective of characteristics or qualities, are fashioned, molded and maintained solely because this problem exists. To understand The Economic Problem is to know the purpose and functions of economic systems, and thus to have a clear unmistakable point of reference, a firm home base, from which to proceed in considering any and all questions of economic public policy. . . .

The Economic Problem, let us be reminded, is simply "What disposition shall society make of its limited human and natural resources in light of the unlimited needs and desires which these resources can be used to satisfy?" This is the most important concept in economics, whether regard be had for economics as a formal study or for what it has to contribute at the school level to general education.

Let me labor this thesis, lightly. But, first another precautionary negative before I am accused of treating you solely to a bill of thawed-out economic ideas chipped out of our nineteenth century deep-freeze, and of ignoring the shattering impact upon our thinking of today's dynamic flows, growth modeling and equation splitting. The Economic Problem is not confined to static division; it does not reflect an assumption that product is fixed in amount and that economic alternatives relate only to kinds and direction. The problem is "What use shall be made of our resources?," and I offer "use" to you as a dynamic concept which confronts us with choices bearing on fullness and growth as well as with choices of kind—with questions of "how much" and "how quickly," as well as with questions of "what?" The Economic Problem emerges from two basic, interrelated conditions—(1) man's unlimited desires for goods in the aggregate and (2) the limited human and natural resources available to society for the production of goods in the aggregate.

• • • • • Mankind has unlimited desires for goods in the aggregate. Each one of us wants at least a minimum of material goods and services to satisfy his basic needs—such things, for example, as food, shelter, household furnishings, clothing, medical services and so forth. But each of us desires much more than this basic minimum of essentials. Each would like more, and more varieties, of all of these things and many things in addition. The fact is that if each of us did not have to restrain himself by some notion of what he could afford, his individual desires or wants would run on endlessly. In the aggregate, such limitless desires, multiplied in volume by the number of individuals who inhabit the world—go far beyond anything that society can ever dream of actually satisfying from its limited resources.

Society's human and natural resources available for the production of goods in the aggregate are limited. The goods and services with which we satisfy our desires do not grow in limitless quantities upon limitless trees; they do not appear out of nowhere when we rub a magic lamp or utter a "secret word." Goods must be produced (even those few that do "grow on trees" have to be picked—or picked up—and prepared for use). Production requires the use of human resources (labor) and natural resources (land, water, ores, minerals, fuels, etc.), together with techniques and methods for organizing and combining and processing these resources. And we know that basically, these resources are scarce relative to human needs and desires. Despite our marvelous advances in technology and despite the fact that our standard of material living has on the average risen markedly over the centuries, we can never produce such an abundance of goods that everyone in the world can have, all he wants of everything, with lots left over.

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