The science of finance/Introduction to economics

Economics is the science of the production and consumption of goods and services.

Goods and services


Services (labor) are consumed when they are produced.

The goods produced are consumed after a certain period, short (fresh products) or more or less long (durable goods, including stocks of non-perishable commodities).

Some durable goods are almost eternal (quality housing, jewelry, works of art ...). Others are consumed by use during their lifetime. Even near-eternal goods generally require work to be maintained.

Final consumption is the consumption of goods and services which directly improve the quality of life (in principle, because they can also deteriorate it): food, clothing, housing, health, education, transport, sport and entertainment, long distance communication ...

Intermediate consumption is the consumption of goods and services that serve in the production chain of final goods and services.

Certain goods such as means of transport, computers and smartphones can be used both as intermediate goods and as final goods.

Quality of life


The quality of life does not only depend on final consumption: having a good job and benefiting from good working conditions, feeling safe in the present, for our future, that of our children, our country and all humanity, respect and be respected, love and be loved, know how to meditate and relax, be at peace with oneself and with others, do not despair, breathe good air, benefit from a good climate and a welcoming nature ...

Real wealth and market wealth


Real wealth (capital) at any given time is the sum of all durable goods.

We can also include in the real wealth the intelligence, the competence and the health of human beings (human capital) and the natural wealth (seas, oceans, rivers, lakes and rivers, landscapes, natural fauna and flora ...).

Market wealth is the market value of real wealth. It is assessed with market prices. When goods are not sold, their market value is assessed from the market prices of equivalent goods. Since human beings are not sold as slaves, their market value cannot be assessed, except by very questionable indirect means (discounted lifetime income or risk price).

Market wealth depends on long-term expectations. Durable goods have a market value because it is anticipated that they will be used, and that they can be sold. But lifestyles, and expectations of future lifestyles, can vary. Such variations are difficult to predict. If, for example, humans give up tourism by air, all the infrastructure and equipment intended to produce and consume the planes, including the planes themselves, automatically lose their value. If fiancés lose the habit of offering diamonds, the market value of diamond stocks will be greatly diminished.

Expectations are very fluctuating. They vary with the occurrence of unforeseen events (disasters ...) and are often irrational (animal spirits) because no one can predict with certainty what the future holds for us. This is why the market value of shares can change suddenly. Billions of dollars can disappear in a day without a note being burned, simply because humans have changed their minds.

Investment and long-term vision


Investment is the change in real wealth over a period. A negative investment is a decrease in real wealth (non-renewal of durable goods consumed or deteriorated).

To invest intelligently, we need to have a long-term vision. What goods and services will human beings want to enjoy in the coming decades? Will they have the means to buy them? What intermediate goods must be produced to facilitate the production of final goods and services?

Training is an investment in human capital. Intelligent vocational training also requires a long-term vision.

The market economy is generally short-sighted. The ideal would be for all citizens to agree on the priorities to be given to the economy and for an intelligent state to correct the failings of the market economy.

Work and dignity


Work is the main source of wealth. When we consume goods and services, we give work to all those who participated in their production. Being deprived of work is generally a great suffering, at the same time economic, social and psychological. Giving work is giving dignity, provided it is a good job, in good conditions (hours, equipment, security, respect ...) and honestly paid.