The Greek philosopher Democritus pioneered a theory in physics that all matter is made up of indivisible, invisible, and homogeneous particles called atoms. All of the laws of physics were based upon the properties of atoms. Modern physicists do not believe that atoms have these exact properties, but that they are made up of further particles, electrons, neutrons, and protons, which are made up of even further particles. However, physicists can draw on some fundamental truths which function to modern physics the way that the atom functioned to Democritus’ view of the natural world. Namely, these truths are that matter and energy exist and have certain qualities that interact to create the physical world. All of thought that is in light of these two truths is what we call physics. Why matter and energy exist in the way that they do is left to other fields such as philosophy, theology, and perhaps even math. For every field of study there are fundamental principles upon which it is based. For math, these might be self-proving theorems such as 0=0 or 2<3. For biology, these are the existence of cells which interact in various ways to create life. This is all related to the question which I want to answer today. What is the “basic particle” or “Democritus’ Atom” of economics (I think I know the answer I just wanted to go through a few things first).
Economics students first learn that people deal with utility. Utility is the value that something has in light of the goals of the actor. In that sense, isn’t the entire economy made out of utility? At every single level of the economy, with every single step, we encounter utility. Does this make utility our basic particle? I don’t think so. The nature of utility doesn’t explain why the economy is the way that it is, in the same fashion that the laws of energy and matter explain the entire physical world. Utility merely functions similarly to how potential and kinetic energy function in the physical world. It keeps goods flowing through the economy as it gives those goods reasons to move and their actual motion.
So what about the resources? Could the goods that hold the utility be our basic particle? Utility is just a quality that various goods and services hold in the eyes of actors. Goods and services are at every level and step of the economy along with utility. All market transactions involve some form of goods whether it be labor, money, or other physical goods. It would be hard to imagine an economy without goods and services. As with utility, their ever-presence does not make them a fundamental principle. Again the various qualities of the goods do not explain why they are where they are in the economy, or again why they have as much utility to various people as they have.
Alright enough screwing around. In physics what is being studied is the interaction of the qualities of matter and energy to create the physical world. In economics, it is the interaction of finity and decision-making (sometimes rational, sometimes irrational). Every interaction of energy and matter results in a physical event, and every interaction of finity and decision-making results in the phenomenon which we call scarcity and an economic event or economic choice. We then come to the already accepted definition of economics; the study of choice.
Being that this is a playground, let’s play around with this. Suppose neither finity nor decision-making existed. This world has infinite possibilities and no way to discern between them. There we cannot perceive economics. Suppose only one existed. If there were finite material yet no decision-making agents, then there is only so many possibilities yet again no one to make choices between them, and they play out on their own. The situation in which there are decision-making agents yet infinite material is the same as the famous question, “What is the economy of heaven like?” The answer is that there is no economy in heaven. The decision making-agents already have all that they could possibly perceive as valuable and therefore have no need to make choices.
So there we have it; the economic choice is our economist’s Democritus’ atom. The other proposed ideas of utility and goods are very core properties of economic study, but are still emergent from the economic choice. Utility exists because there are agents which have goals to which they assign utility, and the resources have utility because the agent is trying to manage around their scarcity. This fundamental object of the economic choice is what separates economics from other disciplines even though it is still dependent upon other fields such as physics and psychology. The more that economics focuses on its own base particle, the more confident we can be in a new economic idea.
Physics Proofreading credit to Amartya Banerjee
Photo Credit: http://www.iep.utm.edu/democrit/