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The Economic Urge

Nathan_TaylorWhen I was a young(er) man I came across an unlikely statement that set me on the path of becoming an economist. It was an outrageous claim that, in this modern world, with our profusion of technology and learning, not one single person would know how or have all the skills to make a single simple pencil. Considering that never in human history has wealth been so proficient and technology so developed, I remember thinking that this statement was completely bollocks.

But when you think about it, making a pencil involves a wide number of activities to be undertaken throughout the world, and each step in producing it involves many ancillary activities to make them happen. For instance, the pencil’s wood may have been harvested in an Indonesian rainforest, while the lead composite that constitutes the pencil (or whatever the alternative now is!) may have been mined in Latin America. Meanwhile, the tools to harvest the lumber and mine the lead substitute have all been made by someone else. The petroleum will need to be refined in the Middle East and made into tyres and petrol to transport the wood, meanwhile a saw is needed to chop down the trees has to be created by a mill, which itself involves many component parts. The process goes on in an incredibly complex set of activities that are required to produce pencil and all the products that contribute to it being in my hand (or more often in my mouth).

Why did the newsagent conveniently happen to have one sitting there waiting for me? The answer was because I paid for it. I wanted that pencil more than I wanted the loose change floating around in my pocket. Free and voluntary exchange meant that all along the production process individuals exchanged their aspirations, their wishes and their dreams to labour and produce my pencil. All I had to do in order to thank them was pay 10 cents (this was back in the day…).

The economic insight behind the odd statement was that price transmits sufficient information to motivate numerous people throughout the world to put their personal plans on hold, to adjust their behaviour and lifestyle and to cooperate in an intricate process just so I could have something to write with and to occasionally chew on.

Now that may sound like a mundane insight, and in many ways it is common sense. However, it was also very profound when appreciated within the context of the time. In the late 1980s, when I was a young(ish) man the world was divided into two philosophical camps and the world locked in the last stages of a cold war (Gen Y: to understand what I am talking about click here). When I was growing up, science fiction books postulated frightening apocalyptic scenarios of world wide destruction and there were an amazing tension in global affairs (and were themselves rather effective propaganda tools).

It was, at times, kinda scary!

The insight that price is able to profoundly motivate people to alter their behaviour and cooperate throughout the world without complex centrally laid plans was very significant. It turned out to be the Achilles heel of the communist system.

Economics was able to provide a very basic and fundamental insight into the power of democratic political systems over totalitarian regimes.

Since then the world has moved on, and move on very fast. The problems and challenges confronting us as individuals and our communities, not to mention our nation, are profoundly changed.

However, technological breakthroughs have provided fresh insights into human behaviour in a number of fields of study. Neuroscience and behavioural economics are providing breathtaking insights into what it means to be human and what is involved in that most basic of human activities – deciding what the hell we are going to do with ourselves.

The blogs that follow will delve into Pandora’s Box of the human mind and unfold some of the emerging insights into human nature.

This blogs will explore many of these emerging insights and put them in the context of our daily life. These insights will improve your understanding of what drives human behaviour, how societies make decisions, and your own mind through an exploration of one of the most exciting fields of study: behavioural economics.