More about the Nature of Economics

At this point it is necessary to remind you about what I said about money in the paragraph “a Definition of Economics”. That is that economics is the study of human behaviour not the study of money itself.

Economics is the study of people and how they react to money - which is a very different thing. A$100 dollar note lying on the pavement has no life of its own. It is quite incapable of jumping up into your pocket. You have to bend down and pick it up. Therefore economics is the study of human behaviour in relation to money. It has been found over a long period of time that most people react in fairly similar ways to money and economics is based on these broad principles. Economics can therefore never be an exact science because it is impossible to know always and under all circumstances how people will react to it. Economics is based on the almost universal observation that 99% of people will pick up the $100 dollar note - but some won’t!

Hindus entertain the unreasonable idea that cows are in some way sacred - so India is not an ideal place for cattle ranching.

In Ireland, it was recently reliably reported that in the County of Kerry, a number of citizens fell out with their local bank and were determined to drive the bank from the town or into insolvency. One of these Kerrymen had read a book on economics in which he was informed that every bank note issued was a credit owed to the bank and therefore an asset of the bank (which indeed it is and which we shall discuss in more detail later). With this knowledge they determined to destroy the assets of the bank by destroying their own bank notes which they did in a large bond-fire. I mention all this not to call attention to the intellectual superiority of the Irish (of which I am one) but to show the irrationality to which all men are inclined.

Economic behaviour, or the so-called behaviour of money, will only be rational insofar as the people who handle it are rational.