How Economies Work - Part A

 

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.