Economics – the art of allocating scarce resources?

The word economics stems from the Greek oikonomia, or simply put: household management. Historically, economists in the English tradition have dealt with how we can allocate the scarce resources we possess as efficiently as possible. The philosopher Adam Smith pointed out how increased division of labor, until an optimal point, will increase welfare. Later, David Ricardo, developed his theory of comparative advantage, explaining how trade can make both trading partners better off. 

What is striking, is that they were writing their works in Britain in the middle of the industrial revolution, not commenting on how innovation and technological development was forever changing the dynamics of growth, enabling an escape from the Malthusian trap (at least so far). In ancient Greece, where technological and economic development from generation to generation was minimal, it may have made perfect sense to mainly focus on efficient allocation of current resources. Luckily, we hardly live in ancient Greece.

Arguably the Soviet Union did not allocate its economic resources very effectively, but it was the lack of innovation that brought it down. Similarly, China is arguably wasting a large portion of its domestic product because of inefficient allocation, but this does not matter very much when yearly growth rates have been more than 10 percent the last decade as technology and innovation is absorbed from abroad. Efficient allocation is only truly important in an equilibrial steady state. We here at Evolution-Revolution have yet to find one off the blackboard, and strongly believe that understanding the dynamics that propel the economy into the unknown should be at the core of economics, rather than optimizing a static economy that only exists in the abstract.

- Jørund Holterud Aarsnes