A lot of people seem to believe that economics is the study of how one makes money. It is difficult to understand where this notion comes from, but since the price mechanism is prevalent and fundamental to what makes a market, perhaps the layman’s definition isn’t completely wide of the mark.

However, money is neither necessary nor sufficient for the study of economics. Economics studies value, for which money may be a proxy. But a proxy is not that which it represents, just like a receipt may represent or even prove a purchase but isn’t, in itself, the purchase. Wikipedia notes JB Say’s classic definition of economics as the study of production, distribution, and consumption of wealth. Wealth denotes created and (justly) acquired value. It may be in the form of money, though money is really a means to and in fact a claim to (future) wealth through goods and services.

Someone might argue that focusing on goods and services is too narrow, that there are other dimensions of wealth, and that it is too materialistic. It is true that such an interpretation is possible, but it is not accurate. Value lies not in the physical nature of “stuff,” but in our intended use of it. A steak is valued not because it is a piece of cow, but because it is proper food that gives the eater nutrition, energy, and – perhaps – pleasure (if cooked well). The value is not the steak, but what we expect from it. The steak is a means to an end. The end is the real value, and the means is valued because of its expected service in fulfilling this end.

Does this make economics materialistic? Hardly. But the fact is that we live in a physical world as physical beings, so of course the materialistic dimension to our being is important as both limitation and facilitator of the possible. Note how the concept of scarcity crept in there? The very reason we’re not fully content is that there is a limitation to how many wants and needs (valued ends) – and that our wants are insatiable. It may appear that our wants insatiability is a result of the limitations of available means, but this may not necessarily be so; it can be argued that it is a fact of existence that all cannot be fulfilled at once.

Nevertheless, there are social and subjective dimensions to the materialistic means oftentimes studied in economic research. While much can be said about this, the fundamental point is that the very fact that something is a means is that it is subjectively considered so (and therefore valued). It is social in the sense that our subjective appraisal is embedded in a social framework through which we appreciate ourselves, identify and recognize as well as rank values, and that we use to acquire and help us appraise the best or proper uses of a means.

What is materialistic about this? How is this “all about money”? Economics is a social science that recognizes that only individuals can act and value, but that they do so embedded in a social setting. While Robinson Crusoe might have used means toward ends, even in an economizing fashion, his doing so was not an economy. The economy requires a social aspect through which means are valued inter-subjectively and thereby made (almost) objective. Valued differently by different people, a “price” is determined by the individual actors by acting on their values. The price is the social “cost” or appreciation for a means toward known ends that maximizes its value promise on a social scale.

The reason economists use demand and supply schedules (“curves”) is that they are graphical illustrations of the social (that is, inter-subjective) valuations of means and ends that can easily show or represent “how much value” can be achieved through the limited resources (means) at hand. The [market] price is the [opportunity] cost of satisfying wants on a social level, and it is therefore necessarily maximizing to the degree possible since people “automatically” prefer something (an end) they value higher than an alternative of lower value.

The depth of economic reasoning is closely tied to the subjective nature of human action as well as the social dimension and valuation of ends. Without either, the economic analysis is lacking and not very important. So it is both a straw man and a sad development of modern economics that it has come to be defined (in one way or the other) using Lionel Robbins’ definition of economics as “the science which studies human behavior as a relationship between ends and scarce means which have alternative uses” (1935, “An Essay on the Nature and Significance of Economic Science,” p. 16).

Certainly, Robbins’ definition is an important limitation that must be part of the study of economics – there is no point in studying valuation of ends that are satisfied through an abundant supply of means and therefore constitute no problem and requires no choice (in other words, they have no opportunity cost). But the fact that the economic problem is tied to scarcity, which is a fact of physical existence, does not make it a study of that fact. There is no scarcity of valuations, which is what economists traditionally study, but of the means that can be used to achieve those ends in the physical world. The difference is very important.