A Pedagogical New Year Resolution
If your resolution for the New Year is to help your friends learn economics, here is an idea. Tell them something like that: “Except if you are venturing into the special fields of monetary or financial economics, rethink and reformulate any economic problem in terms of real resources, that is, actual inputs and the goods and services they serve to produce. Don’t think about, ‘dollars,’ ‘euros,’ or any other national currency.”
The valuation of an object is nothing more or less than the affirmation, that it is in a certain degree of comparative estimation with some other specified object; and any other object possessed of value may serve as the point of comparison. A house, for instance, may be valued in corn or in money. To say that it is worth 4000 dollars conveys a more accurate notion of its value, than to say that it is worth 4000 bushels of wheat, solely because the habit of reckoning the value of all commodities in coin makes it easier for the mind to form an idea of the value of 4000 dollars in other commedities, that is to say, of the quantity of other commodities obtainable for that sum, than of that obtainable for 4000 bushels of wheat. Yet, if wheat be 1 dollar a bushel, the degree of value expressed by each is the same. (p. 284)
This understanding of relative prices—the price of a house in terms of wheat—will also help your friends grasp what inflation is: the increase in the prices of all goods (the general level of prices) in terms of a certain currency.
The basis for understanding wealth and poverty is not that pieces of paper or accounting balances are moving from one pocket or one account to another but that individuals are making choices, exchanging among themselves, and otherwise moving real resources.
Quoting a long-dead French economist provides tangential benefits. It is useful to know what intelligent people thought in the past after they raised the same questions as we do. Another tangential benefit is to put the new year in a broader, albeit very short, time-space perspective: it’s already 2022 or, alternatively, it’s only 2022! Happy New Year!