Economy

The words “economy” and “economics” derive from the Greek roots “oikos,” meaning “house,” and “nomia,” meaning “management.” Literally the word refers to how we manage our “house” at scales from individual households to communities, nations, and the whole world. In modern usage, “the economy” is often equated with “the market economy”—the sum of all the transactions of goods and services for money. But this is far too narrow a definition. A broader definition often used is “the allocation of scarce resources among alternative desirable ends” (Farley and Costanza 2002). This definition implies the analysis of what ends are desirable, what resources are scarce, and how best to allocate the resources to achieve the ends. Certainly the market and the goods and services exchanged in it are a part of this, but many desirable ends exist outside the market, as do many scarce resources. So a better way to think about “the economy” is as everything that is scarce and that contributes to desirable ends—broadly, human well-being and its sustainability. In our current “full world” (Daly and Farley 2004), almost everything is scarce, including natural and social capital assets, most of which are outside the market. In addition, human well-being is a function of much more than the consumption of marketed goods and services (Costanza et al. 2007). The emerging “science of happiness” (Layard 2005) and “positive psychology” (Seligman 2012) attempt to better understand what influences people’s subjective sense of well-being. It is clear from these and many other studies that nonmarket factors are extremely important.