To the
question “How do economies work?”, we’ll start
with a thought experiment. Let’s say we had to explain to a person that lived two
or three-hundred years ago how a gas-powered automobile works. Where would you
begin? We might point out where to sit and which pedal to push, but does that
really explain how the automobile works? You may be showing that person how to
operate the vehicle, but you are not establishing first principle. Unless you’re
referencing the pistons and the crankshaft, you are not addressing the
principle of motion.
When the student
poses the question of how an economy works, the assumption must be that
the person is actually trying to understand the principle, specific to
economics, that REQUIRES an economy to perform the way it does. The student
is not asking how to balance a budget or how supply will influence price. When the
student asks, “How do economies work?”, they are more likely intending to ask:
“What MAKES an economy work?” and so, that is the question that will be
addressed here.
