What do you think is the most important principle in the economy?

The most important principle I think is that:

In every economic deal, both parties find that after the deal they are better off.

This makes sure that much more value is created.

If someone makes shoes so good that I want to buy them, then he has money after my purchase and I have shoes.He makes shoes for money, and have money to buy shoes, among other things. That is what we want. I can make some money with my own profession much easier than making such good shoes myself. So both of us are better off.

And that is so with an every purchase.Otherwise, he wouldn’t happen.

The most important economic principle is that it reflects actions resulting from choices and the consequences of these actions, which are made with a particular science or knowledge.The choices and consequences are expressed in a relative weighting system which we call value, and we can translate this value (partly) into money.

It seems so easy.I have 100 euros on my bank account and I need new sports shoes. I can choose between Adidas (90), Nike (80) and Puma (75). I choose Adidas, then I keep less money as when I choose Puma. In the balancing act, therefore, not only is a value judgement about the shoe (look & Feel) and the brand, but also a tradeoff to the things that I can or cannot do with the rest of the money. If I buy Puma I can eat more luxer tonight if I buy Adidas.
Now suppose I have to spend 15 euros on my sister’s birthday the day after tomorrow.I have agreed. Then I can’t buy Adidas shoes unless I have a way to get at least 5 euros on my couch in two days time. Luckily I have an old trousers that I can put on the marketplace, see if that succeeds, because those Adidas shoes are very beautiful.

Apparently I’m willing to run a risk (can I sell my pants on time?) to buy the Adidas shoes.This gives an impression of the value that the shoes have for me.

We can extend this principle from a single person to various forms of collaboration.And then it becomes totally interesting. Because the shoe shop has made a choice to buy Adidas shoes, and the shoe shop next to it has Puma in stock. My choice for Adidas makes me go to the first store, and the second store has no sales.
However, the shoe was also not free for the shoe shop, and if I were the only customer, the “Puma shop” can close the doors.Again: choices and consequences of choices, expressed in value and thus in Money.

We can go one step up, to industry.The same principle applies there: choices and the consequences. And even at the level of the government this applies. With money, subsidies and taxes, choices are made. If we want more “environment” then we throw the tax on gas and gasoline up, and we give subsidies on solar panels and windmills.

However, and this is important to realize in the economy: the choices we make and the actions that result from this are influenced by what we know and think today.
If I know that Adidas will be releasing new shoes tomorrow, I might want to wait until tomorrow.The old ones will be there as well, possibly with discount. And the new models offer more choice, unless they are more expensive as my budget of 100 euros. If the new shoes do not come out until two months, I will not wait, I want to be able to do sports in the meantime and my old sneakers really cannot.

Now it is also clear why economy is very close to social sciences.It is about decision-making (choices) by people based on available information. And not all the choices of people are rational. It does not matter whether a shoe has pink or yellow stripes, but for the buyer’s experience it is possible. This is prepared to determine an additional charge for pink stripes instead of blue stripes, but finds the yellow stripes ugly and wants to buy these shoes only with high discount. This also gives emotion a value to be put into money.
Because people work in groups, they also influence this.As gabber in the ‘ 90 you had to have Nikes and an Aussie to really do with it, preferably with your bare head. These groups influence the choices people make, and are therefore also economically important. If in such a group the trend changed, the gabbers now also want shirts bombers and if they do not go to the house party they do Docter Marten’s chests, then that has implications for the choices that the people make, and therefore also for the shops that sell these products. But also for the shops that sell other products, because a jacket and crates is again 150 Euro less to spend on Cds and tickets for house parties.

For this reason, economic science is often very chaotic.We know there are trends, but we cannot predict or fathom 100%. There are too many influences and we cannot set up a laboratory to exclude outside influences as much as possible. You might be able to compare it to the “double slit” experiment around light: Once you have a setup that allows you to perform the measurement, you have influenced what you want to measure, and thus change the nature of what you want to measure.

But the underlying mechanism remains the same: the value of actions resulting from choices and the consequences (again expressed in value) of choices based on information available at the time of action.

From this principle, you can investigate other phenomena in the economy, such as “profit maximization”, what content that makes you choices that minimize value and add as much new value as possible.

Leave a Reply