Front Page Titles (by Subject) Scarcity and Economics - The Economic Point of View
The Online Library of Liberty
A project of Liberty Fund, Inc.
Search this Title:
Scarcity and Economics - Israel M. Kirzner, The Economic Point of View 
The Economic Point of View: An Essay in the History of Economic Thought, ed. with an Introduction by Laurence S. Moss (Kansas City: Sheed Andrews McMeel, 1976).
About Liberty Fund:
This work is copyrighted by the Institute for Humane Studies, George Mason University, Fairfax, Virginia, and is put online with their permission.
Fair use statement:
Scarcity and Economics
Economists had long recognized, at least to some extent, the role played in economic phenomena by the factor of scarcity. The physiocrats had excluded from their subject matter “free goods” (such as air) because, being abundant, they were not objects of exchange. Among classical writers, Lauderdale explicitly required a degree of scarcity for individual (but not public) wealth;4 most of the classical economists succeeded, in one way or another, in excluding from the scope of the science of “wealth” those goods whose supply was unrestricted. In the classical use of the “law of supply and demand,” what was relevant was the scarcity of the supply.5
With the movement away from the objectivism of the classical science of wealth and with the increasing interest, during the second half of the last century, in man and his behavior, the idea of scarcity as a factor conditioning human action assumed ever greater importance. Economists who recognized the uniqueness of the maximization-pattern of behavior and the paramount position of the so-called economic principle could hardly fail to be aware of the fact that the basic source of both is to be found in the phenomenon of scarcity. A clear understanding of the fundamental character of scarcity as a condition of human action began with the work of Carl Menger.6 Menger still considered economics as concerned essentially with goods, but his definition of “economic goods” and of “economizing” placed the condition of scarcity in the forefront. The four components of the activity of economizing, Menger explained in 1872, are called into play only when “the requirements of men for many goods are greater than the quantities available to them.”7
It is of some importance that writers such as Menger used the criterion of scarcity as a refinement of the definition of economics couched in terms of goods. This circumstance throws light on the relation of the idea of scarcity to the emergence of a clearly recognized “economic principle.” Such a relationship was perceived very soon. Dietzel, in attacking the notion that the economic principle provides a valid means of describing the scope of economic science, remarked that the criterion of scarcity suffers from the same inadequacies as the economic principle, to which it is, indeed, equivalent.8 It is obvious that conformity to the economic principle is called forth by scarcity. In fact, what the economic principle is to economics, considered as the analysis of behavior, scarcity is to economics, viewed as the analysis of goods.
Although several German writers, including Schäffle and Cohn,9 had laid stress on the phenomenon of scarcity and its importance for economics, there is reason to believe that this did not imply the recognition of the role of “economizing” in Menger's sense. Scarcity can be associated with economic affairs, not necessarily as a means of genuine demarcation, but merely as a simplifying device for the theorist. Anything appertaining to the satisfaction of material wants, let us say, may be considered as economic, but in order to facilitate analysis it may be necessary to confine attention to scarce goods. Determinate solutions of economic problems, it is found, are yielded only when scarce goods are involved. And this property of scarce goods may be employed in marking out the scope of economic science without seeing scarcity as affording any real means of distinguishing the economic from other phenomena. The accident that makes scarce goods particularly amenable to theoretical manipulation may not lead to the discovery of any uniqueness in the act of economizing at all.
Something of this seems to underlie Neumann's treatment of the definition of economics in terms of scarcity. In his survey, made in the eighties of the last century, of attempts to define economics, Neumann rejected the criterion of scarcity on rather surprising grounds, which reveal his limited appreciation of the real nature of this criterion. Scarce goods, Neumann asserted, are sometimes used for noneconomic purposes, e.g., for artistic ends. Moreover, Neumann added, there are cases of economic activity that involve only nonscarce goods. Thus, when an entrepreneur acquires sea-water, a nonscarce commodity, for the purpose of renting out sea-water baths, he is surely engaged in economic activity, even though he is dealing in what, according to Menger's definition, is a “noneconomic” good.10 It is fairly obvious that an understanding of the nature of the act of economizing would have prevented Neumann from offering these objections. In so far as sea-water baths are scarce, their provision surely entails economizing and is hence an economic activity, no matter how plentifully one of the materials may be obtainable in some other situation. And in so far as the materials for the expression of artistic impulses are scarce, their provision is also governed quite as powerfully by the economic principle.
Outside Germany there were, before the turn of the century, far fewer references to scarcity as a possible criterion for defining the nature of economic activity. Walras was one of the few writers who stressed this criterion. He required that what he called richesse sociale be both useful and scarce. It is not an accident that “Walras' term for marginal utility is rareté. One writer has remarked that “Walras' rareté appears to be a truer concept than the common notion of marginal utility, for ... he gives clear recognition to the fact that supply limitations are included and expressed in it.”11 For the rest, the focusing of attention by mathematical economists generally on the role of maximization must be accompanied by a lively awareness, even if not explicitly expressed, of the restriction of such behavior to cases admitting of a finite maximandum.
During the present century scarcity definitions of economics have become decidedly popular. Precursors of Robbins' formulation in terms of the act of economizing scarce means for the attainment of competing ends include a number of prominent figures. Besides Menger (in the last century), Robbins himself cites such writers as Wicksteed, Mises, Fetter, Strigl, Schönfeld and Mayer in this regard. Moreover, Robbins' formulation has been described as in some degree akin to ideas expressed by Spann and Oppenheimer. Both Voigt and Max Weber paid explicit attention to this point of view.12 Any number of writers could be mentioned who, without endorsing Robbins' definition of economics, yet ascribe the central economic role to scarcity. In fact, one or two writers have felt bound, in reaction to this trend, to moderate the general enthusiasm for the conception of scarcity by asserting the possibility of an economics of “abundance.”13 It must be admitted that these writers do not demonstrate any partiality to the notion of “economizing,” from the standpoint of which abundance is meaningless in any other than a relative sense.
There was thus a long tradition in economic literature in which the importance of the limitation of resources was recognized, and there were, moreover, many indications pointing to the possibility of using the administration of scarce means as the distinguishing criterion of the economic.14 In pressing the scarcity of means into service as the very core of everything economic, and by discovering in the effects of coping with such scarcity an economic aspect to activity in general, Robbins was crystallizing ideas that had already been in ferment for some time. Perhaps the most useful service afforded by the fresh formulation lay in the clarity with which the conception of economic activity as consisting in “economizing” was contrasted with the older definitions. Perhaps never before had the notion of the allocation of scarce means among competing ends been so consciously and vigorously presented as independent of the particular nature of the ends and means that may be involved.
[]Earl of Lauderdale, Inquiry into the Nature and Origin of Public Wealth (Edinburgh, 1804), pp. 56–57.
[]See, e.g., N. Senior, An Outline of the Science of Political Economy, pp. 14 f.
[]On this point see Hayek's essay “Carl Menger,” Economica, 1934, printed as the Introduction to the edition of Menger's Collected Works of the London School of Economics, p. xiii. See also Knight's critical comment on this in his Introduction to the English edition of Menger's Grundsätze (Glencoe, 1950), p. 13, n. 5.
[]C. Menger, Principles of Economics (trans. Dingwall and Hoselitz, Glencoe, 1950), p. 96.
[]H. Dietzel, Theoretische Sozialökonomik, p. 160.
[]See A. Schäffle, Das gasellschaftliche System der menschlichen Wirthschaft (Tubingen, 1873), p. 2; G. Cohn, Grundlegung der Nationalökonomie (Stuttgart, 1885), p. 4 (see, however, an earlier passage by Cohn cited in Menger's Untersuchungen, p. 254).
[]F. J. Neumann, Grundlagen der Volkswirtschaftslehre (Tübingen, 1889), p. 16.
[]L. Haney, History of Economic Thought (New York: Macmillan & Co., 1949), p. 600; see also K. Wicksell, Lectures on Political Economy (London, 1934), I. 32, for the same point.
[]For these references to precursors of Robbins' definition, see Nature and Significance, pp. 15, 16; L. Robbins, “Live and Dead Issues in the Methodology of Economics,” Economica, August, 1938, p. 344; A. Lowe, Economics and Sociology (London, 1935), p. 42; A. Emery, “The Totalitarian Economics of Othmar Spann,” Journal of Social Philosophy, April, 1936, pp. 270–271; F. Oppenheimer, “Alfred Amonn's ‘Objekt und Grundbegriffe,’” Weltwirtschaftliches Archiv, Bd. 27 (1928), I, 174–175. A. Voigt, “Die Unterscheidung von Wirtschaft und Technik, Erwiderung,” Zeitschrift fur Sozialwissenschaft, 1915, p. 395; Shils and Finch, eds., Max Weber on the Methodology of the Social Sciences (Glencoe: Free Press, 1949), pp. 63 f.; Gesammelte Aufsatze zur Wissenschaftslehre von Max Weber (Tübingen, 1922), p. 365. See, however, Weber's comment on Voigt's position, in Verhandlung des ersten Deutschen Soziologentages (Schriften der Deutschen Gesellschaft für Soziologie, 1911), pp. 265 f.
[]See D. H. MacGregor, Economic Thought and Policy (London, 1949), pp. 1–6; see also O. F. Boucke, A Critique of Economics (New York, 1922), p. 249.
[]See H. Myint, Theories of Welfare Economics (Harvard, 1948), pp. 2 f., for a discussion of the position of the classical economists towards the scarcity view of economics.