Lecture Notes of Jovi Dacanay

CHAPTER 1. THE ECONOMIC LIFE: INITIAL ASSUMPTIONS FOR SOCIAL ECONOMICS

(Those in italics are my comments)

SOME INITIAL ASSUMPTIONS1

 Anthropological Basis of Work

 The Attainment of Well-Being as the End of Economics
 The Essence of Economic Activity
 Money
 Wealth, Poverty and Equality
 Sources of Wealth
 Consumption, Property and Investments

ANTHROPOLOGICAL

 Each person is composed of body and spirit:

 A person is more than a genetic composition. Marxist interpretation of man-Man’s work
is the only thing that makes him become.
 Economic life forms part of culture. But culture is not only economic life.
 It is true that society first has to satisfy basic human needs
 It is under this context that we say that cultural considerations come after the
consideration of economic life
 We cannot separate cultural life with economic life
 Without the satisfaction of basic human needs, man cannot live. Certain
consequences:
1. Specific biological make-up of each person is the cause as to why these
needs have to be addressed
 Man’s body is not specialized. It can accommodate itself to
the environment
 Man needs technique and work in order to relate with the
world and to obtain one’s needs: Man supplants with his
activity what his body lacks in order to live
2. Man’s corporal and instinctive needs can be satisfied in many different
ways
 Freedom is key in order to achieve it in many different ways
 The instinct of hunger does not dictate to man to one has to
eat, at all cost, nor that one has to search for it in a specific
place, nor to eat it in a fixed manner.
 Man uses his intelligence in order to satisfy these needs and
instincts. For example, different cultures have different ways
of eating

3. The person has more needs than the recourse in order to satisfy them
 Reason: initial biological needs and the intellectual faculties
which enables the person to propose to oneself ends which are
not strictly organic
 Freedom enables the person to be open to the possibility that
all things become needs such that one does not come to
distinguish between natural needs from artificial needs.

1
Yepes, Ricardo Stork (1996) Fundamentos de Antropología. Ediciones Universidad de Navarra, S.A.
(EUNSA). Capítulo 13. La Vida Económica. pp. 351-374

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Lecture Notes of Jovi Dacanay

 Playing golf, reading the newspaper, smoking, having a watch

and glasses may come to be considered with the same priority
as quenching one’s thirst

 The satisfaction of basic needs are those needs which refer primarily to our corporal condition. 2
 The resources which can be used to satisfy these needs are scarce
 Search for means to satisfy them. Satisfying such needs means applying the art and technique
of using the means to satisfy these needs
 Economics, precisely, deals with applying the art and technique of using scarce resources or
means to satisfy needs
 Basic needs: nutrition, clothing, living or shelter
 There are many ways of satisfying these needs: making use of our reason, fantasy, sentiments,
will, customs and traditions.
 How economics becomes culture
 Only man has a house. Only man wears clothes, Only man has a menu and a recipe
before he eats. Clothing is more of a spiritual need than a biological need. Reason:
clothing is what maintains each person’s intimacy. The recognition of one’s intimacy is a
manifestation of how one values oneself.

 Conclusion:
 Economics is a peculiar characteristic of being human. The person’s reason and will is
manifested in how he is able to satisfy needs
 Economics is based on work. How he makes use of scarce resources to satisfy present and
future needs through technique.

 In order to live, the person has to modify the material circumstances which he finds himself in,
insofar as these are either accessible, or, there are obstacles to achieving them. From here, we see
the context of the other topics:
 Well-being as the motor of economics
 Technique of managing scarce resources and the production of goods
 Achieved through the use of money: exchange and store of wealth
 Nature of this scarcity
 Sources of wealth
 Economic activity related to consumption
 Centrality of work in developing economic institutions such as the market and the firm

THE ATTAINMENT OF WELL-BEING AS THE END OF ECONOMICS

 There is a natural inclination for each person to seek something which is strictly more than what is
indispensable in order to live. Each individual has needs which goes beyond what is merely
organic.

 That which is more than organic is what we call well-being.

 Does not mean having a pleasurable life, or much less living in a more humane manner.

2
Studies on basic needs have been prevalent in the sixties and seventies. Most of these studies made use
of empirical approaches to providing basic needs. The provision, however, was based on government-
financing. Latter approaches, tried to understand comparative deprivations making systematic use of a
particular type of informational broadening to make comparisons based on observed features of living
conditions. The approach uses a market-based approach. Among the proponents of this approach is
Amartya Sen. See Sen, Amartya (1992). Inequality Reexamined. Cambridge, MA. Harvard University
Press. This new approach is the basis for the rights-based approach adapted by the United Nations
Development Program.under the intellectual leadership of Mahbub ul Haq. See Haq, Mahbub ul (1995).
Reflections on Human Development. New York: Oxford University Press.

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Lecture Notes of Jovi Dacanay

 Well-being refers to the harmony of one’s own body with his physical, social and
interpersonal environment. The good life.
 When one is sick or anaemic, then life becomes uncomfortable. This is not well-being.

 One does not simply live, but has to be living well through the development of one’s spirit, his
culture. Go beyond the requisites of one’s minimum subsistence: use of one’s reason.
 Explanation for luxury: go beyond minimum subsistence. For example: being able to use
things not for its mere utility but also for embellishment such as jewelry or adornments, not
an irrational tendency to spend superfluously.
 In economics any type of good can be seen from its short term, medium term or long term
rates of return. For example, someone may wish to invest her money on jewelry because
in such a market economy, jewelry may be the safest form of storing wealth. This form of
consumption was prevalent before the birth of financial institutions such as banks. When
consumption is made in order to invest a current form of property, then the person doing
so is actually looking at the medium to long term rates of return of such good.
 However, a person may also wish to spend on jewelry for the sake of the mere return of
pleasure or adornment which wearing jewelry brings with it. This means that for such an
individual, the short term returns of jewelry is what is prevalent.
 When an individual consistently consumes on the mere basis of short term returns, i.e.
short term returns are higher than medium and long term returns, this means that the
individual is “impatient” to receive the returns. This can happen in an economic
environment that is largely characterized by uncertainty, i.e. very high and volatile or
changeable interest rates which makes any business investment decision to be risky.
 When the returns to the good in question is not governed by uncertainty, and the
individual merely wants to consume the good now, such consumption behavior is seen as
myopic, short-sighted.
 Use technique in order to achieve well-beings in spite of having recourse to scarce resources
What is proper of economics, therefore, is to respond to the impulse which brings one to the
humanization of the material conditions of life.

THE ESSENCE OF ECONOMIC ACTIVITY

 Resources will always be scarce otherwise no sense to study economics

 Central problem of economics in society is how to reconcile the conflict between needs and
unlimited desires, and, the scarcity of resources (land, labor and capital) necessary to produce
these needs. Have to apply the principle of economics: Achievement of maximum utility at
the minimum cost. (Market or technical efficiency).
 Scarcity is an initial and constant situation. Deliberation and decision. Account for the
means.

 Economics is therefore primarily mathematical, not because it is rigorous and exacting, but
because it has to account as to how far resources can be used.
 Practical science-resolves problems making an account of the use of scarce resources
 Theoretical science-study of the behavior of economic agents and the results of such behavior
 True and primordial nature of economics is that which looks at each person privately as well
as each one being an economic agent. Many facets.
 Human work multiplies these scarce resources. This makes production the principal
economic activity
 Professional view of production is when it is offered as a merchandize in the free market.
Its value is dictated by the laws of supply and demand. Value of productive activity is
called price.
 What is a just price? Price or valuation of a good derived from any form of exchange.
Such an exchange is ruled by commutative justice, that is, an exchange of goods and
services mutually considered as equal in value by the contracting parties in the act of

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exchange. It reflects the significance of things exchanged in relation to need, i.e.

desirability and utility as well as fluctuations in supply, i.e. scarcity.
 Price is a value that reflects the significance attached to the good desired in relation
to all other uses of the money in the buyer’s assessment. In short, price makes
possible the articulation of the ineffable subjective evaluations in tangible terms.
Price makes subjective evaluations publicly accessible.
 In the absence of the price mechanism, as in barter, some other measure of value is
employed. The cost of inputs or tools employed in acquiring or producing a good
plus the labor invested in that activity is perhaps a good substitute for price in barter
situations. But the main consideration is a subjective evaluation based on the needs
of each of the parties in the exchange. Such a valuation includes very subjective
factors such as risk and other costs borne by the valuing party.
 Adam Smith was ambiguous in his definition of exchange value of a good. Adam
Smith characterized labor itself as a good deemed to have value for its own sake.
Accordingly, the gains of any exchange can be measured only by the labor expended
in obtaining the good that was given up in the exchange. This formulation of value,
as a labor theory, was used by Ricardo and provided Karl Marx ample room to
transform it into the thesis that the labor embodied in the final product is the
ultimate and objective measure of value.
 Adam Smith, however, was just interpreting the added value to a good brought about
by labor expended on it.
 St. Thomas, through a study of his writings, has denoted how just price can be
conceptualized. His concept of the exchange value of a good is that price or
valuation mutually achieved by contracting parties, valued from the utilization
of tangible measures such as labor and expenses, within a framework of
subjective economic value and ruled by commutative justice. This concept of
valuation of a good allows a market or economic exchange to occur even in the
absence of prices.3
 Thomistic value theory is more akin to the current or economic mainstream
theory of value expounded by Gerard Debreu and Kenneth Arrow.
 The main objective of economic activity is to achieve a level of consumption, production,
distribution and allocation that will allow the following to happen:
 {Net returns to consumption} equal to {Net returns to production} equal to {Net returns
to society}. Government is traditionally seen as the institution that will protect the
interests of society. This is possible unless a government failure arises.
 Technically, this refers to general equilibrium. In common language this refers to
sustainability.
 This level of equilibrium is achieved in many ways.
 In space, in time, both space and time. This is a static approach. The economist is
interested only in the end result.
 It can also be studied through space and through time or through space and through
time. This is a dynamic approach. The economist is interested to changes in the
levels of economic activity from a process. In practical terms, using a dynamic
solution to an economic problem, an economist may be willing to achieve a
moderately low level of growth now because certain investments have to be made, in
the hope of achieving a higher but sustainable level of growth in the future.
 Education, learning, achieving a reputation for quality, investments in research and
development, economic activities which require cooperation and trust are all studied
using a dynamic approach.

 All the dynamics of business activity is based on work as a factor which creates wealth and moves
the economy. Business is that particular type of production activity which is obtained from the
spontaneous harmony of distinct wills dictated by reciprocation or mutual interest.

3
Zuñiga, Gloria L., Ph.D. (1997). “Scholastic Economics: Thomistic Value Theory. Religion and
Liberty. Volume 7. Number 4.

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Lecture Notes of Jovi Dacanay

 Introduce a product: create it and put in into the free market

 Absorb the risk of introducing a new product

 Under this focus, economics becomes a fountain of wealth based on human creativity
 When a product is put into the free market, one can have both dispositions of interest and
benevolence.
 They are complementary, not contradictory
 Adam Smith’s intrinsic goodness of man refers to the fact that man can give in a benevolent
manner while at the same time taking care of his own proper interest. Thus, for Adam Smith,
a person can act for self-interest because he has to account for his own needs first, but he can
also be altruistic and cooperative.
 Currently, the idea of rationality has been broadened.4 Not because it was not previously
conceived in a broad way. Rather, in a formal way, it was necessary to show that
rationality does not mean selfishness.
 When one is considering social welfare, the current approach is to study what makes a
choice a rational social choice. This field of economics has formally proven, with the
help of prominent economists such as Gary Becker, Kenneth Arrow and Amartya Sen,
that from an economic standpoint rationality is consistent with self-interest, altruism,
trust, reciprocity and cooperation.
 An optimal level of social welfare can be achieved when in spite of personal
differences among economic agents, a first best choice will lead to an improvement
in welfare when decisions are done with trust, reciprocity and cooperation. Great
strides have been achieved from the normative and positive aspects of the economic
science.
 An enrichment of the informational base, that is, an understanding of the personal
nature of the choice as well as that which achieves congruence among the different
persons’ preferences over a choice is what allows society to achieve Pareto
efficiency (right use of resources, right valuation of goods and resources, proper
allocation).
 This field of study has prompted economists to study deeper the nature and causes of
phenomena which lead to marginalization or comparative deprivations. Using positive
analysis, economists have looked into the sources of variation among individuals so as to
understand the causes of marginalization
 These causes are contingent in nature and they deprive persons of opportunities
which they could have enjoyed in a market economy.
 These contingencies lead to limitations in converting or transforming income into the
capability to live a minimally acceptable life. These reasons are beyond poverty
income.
 For example, there are many sources of variations, ie. personal differences brought
about by health such as proneness to illness, environmental diversities such as living
in a storm-prone or flood-prone area, variations in social climate such as the
prevalence of crime or epidemiological vectors, differences in relative deprivation
connected with customary patterns of consumption in particular societies such being
relatively impoverished in a rich society which can lead to a deprivation of the
absolute capability to take part in the life of the community, also included in this is
discrimination
 Gender inequality is partly cultural in nature
 Social capital. Social capital are features of social organizations such as trust, norms,
and networks that can improve the efficiency of society by facilitating coordinated
actions. Basis: trust and norms. Where social capital resides is in networks or a system
of cooperation5. Already used in microfinance, i.e. financing for socialized housing

4
Sen, Amartya Kumar (1999). “The Possibility of Social Choice.” American Economic Review. June
1999. pp. 357 – 364.
5
Putnam, R. (1993). Making Democracy Work. Princeton: Princeton University Press.

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Lecture Notes of Jovi Dacanay

projects, health care and insurance provision to very low income classes, rural credit
cooperatives. These sectors are considered high risk

 What is natural in man is love-giving oneself as well as obtaining what is lacking, or love-
necessity. Love-necessity is not acquiring what we lack, at the cost of removing the love-giving
which is as natural and necessary as the former.

MONEY

 Economic activity consists in a market exchange realized through work. This institution will not
exist without money. To be a means for exchange, money has to be universally recognized.

 Four functions of money:

 Means of exchange or payment. It is from this function that the transactions demand for
money is derived.
 Unit of account. Value of money can be fixed. It is from this function of money that a
universally accepted currency has been derived.
 Store of value so that one can use it to buy something in the future. It is from this function
that the concept of savings, pension funds, trust funds, insurance are all derived. All forms of
savings as postponed consumption.
 Unit for future or deferred payments. Payments which have to be done in the future are
generally specified in money terms. It is from this function that the speculative demand for
money arises

 Anthropological value of money: mediator of all economic relations. It has an essential mobility.
Universality of money is an abstract concept, mathematical in nature. For example, usually, an
international currency standard is used-dollar to domestic currency exchange rate. Its level
becomes a result of a balancing act, an equilibrium level: net exports, the government’s
international debt, money supply. If the domestic currency is used as a fiscal instrument to
achieve growth then one has to include the targeted growth level, that is, if the government intends
on managing the currency.
 Money becomes an important instrument to achieve well-being. Money becomes both a
means and an end.
 Possibility of looking at the possession of money as an end in itself. Human activity is seen
or valued only from the point of view of the amount of money it can attain. Human activity is
judged according to an accounting of debits and credits, something that one can be in control
of. This type of disposition usually applies the law of the strong and results into corruption.

WEALTH, POVERTY AND EQUALITY

 These three concepts have provoked a lot of wars in the past as they are primordial in any
economic life and in society. These concepts have generated a lot of conflicts.

 Misery is the lack of goods and economic, juridical, cultural, political, affective, moral and
religious resources and is characterized as such because the person is not free and has to be
subjected to an inexorable and blind material dynamism which keeps one from developing.
Poverty and misery are similar concepts but they are not equal because misery is more graphic and
is stronger than the concept of poverty. Misery puts a person into a situation that is dehumanizing,
that is, subjected to an enslaving dependence with respect to basic goods which he needs in order
to subsist. A person in a miserable state is put in a situation similar to that of an animal wherein it
seems impossible for him to achieve more superior needs such as culture, which humanizes his
life, making him live in a dignified manner. To be miserable is to be a slave of the primordial
human needs, to see oneself constrained to reduce life to the satisfaction of these basic needs only.

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Lecture Notes of Jovi Dacanay

This makes misery a state wherein a person feels and lives in a materialistic manner. Life is
reduced to mere existence, of sustaining oneself as one is capable of in this life.
 To go beyond physical misery cannot be achieved through the mere absence of scarcity nor of
obtaining more than what is basic. To go beyond misery consists in dealing with material
things in an immaterial or humane way. We can intervene in the use of nature, humanizing it
for our utilitarian and aesthetic ends.
 If culture is the superabundance of the spirit of man, in the physical world which surrounds
him and misery is the impossibility of achieving this, we have to conclude that there is no
culture without well-being and vice versa. The elevation from the material world from a
human point of view requires the achievement of the immediate primordial goods. Well-
being is that situation wherein the spirit of man is manifested in culture, or said in a different
manner, that situation in which the liberation from misery permits that work be culture, and
not a mere superabundance. Thus, misery is an inhuman situation because it impedes the
manifestation of the spirit.

 From the point of view that poverty and misery signifies impeding the necessary satisfaction of
cultural needs (in the broad sense of the word), the nucleus of poverty revolves on the non-
utilization of one’s proper energies, in the non-usage of human capacities. A poor person is a
marginalized human being. This means that he has not learned to use his intellectual faculties,
without well-being and therefore not living the good life. A poor country is filled with persons
who are like this, ignorant, marginalized and abandoned. To measure poverty does not consist
only in measuring per capita GDP, but in the degree to which many persons are liberated from the
different forms of misery. Poverty is un-culturation.
 A person that is inflicted with the unnatural desire of wanting money for its own sake and
even wanting it immoderately, his well-being is likewise diminished. Thus, the poor can even
be happier than the rich, have less worries. Poverty, paradoxically, can signify freedom when
one knows how to transcend one’s poor state. It is in this sense that we refer to poverty as
scarcity and not strict misery. A poor person may not be miserable, because in spite of his
impoverishment and the ever present scarcity of means, he feels free in the truest sense of the
term.

 Wealth, therefore, consists in well-being and one has to avoid the error of having money as an end
in itself. Richness can therefore be the possession of many goods and achieve well-being through
these. But if culture signifies an interior world that is rich, the greatest riches therefore consists in
the interiority of man, that is, in his spirit. This is not a spiritualist consideration, but is crudely
economic: the best fountain or source of resources is the creative intelligence and a strong will,
capable of realizing one’s chosen projects and organizing one’s surroundings in a humane way.
The information age, for example (The Economist, 27-5-1995, 18), has allowed reason and the
will to have precedence and has its seat in the intelligence of the person. Thus, one’s intelligence
is the best resource of a business or an institution, as can be verified by any authority.
 The error of monetary wealth consists in the interpretation of well-being as mere material
misery. In fact, in reality, wealth is much more. Wealth is the integration of all goods that
contribute to human happiness. A great part of these goods is in the interiority of the person
himself, in his productive and inventive talents and capacity to generate wealth. The person
is the root of the economic primacy of the market economy.
 Monetary wealth is the misery of the spirit proper of a consumerist society: it is a
materialization of the ends of human activity, refined in its appearance of luxury, but crude
and violent in its interior disposition.

SOURCES OF WEALTH

 The most important sources of wealth are work, production done by men and its origin which is
intelligence. All of these would not possible without the human person whose reason for being is
that of being a gift of oneself.

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 This means that before a person is able to produce and to work, he has to receive gratuitously
his being, what he has and what he can.
 The gift of oneself is the most important source of wealth. All the other sources of wealth
presuppose this gift.
 A gift is that good which each person regards as part of his dominion or possession without
having searched for it: these re life, freedom, intelligence, being loved and being a child of
somebody else.
 In the final analysis, a gift refers to all the goods received as a gift.

 When a man finds himself existing in the world, in a determined culture, tradition or community,
he has in his possession those goods which are for him may be considered as a gift.
 More so, his life is a gift which he has not given to himself. Thus, gift refers to having
accepted something and loving it with a love of benevolence, acknowledging it as something
valuable.
 The richness of the gift demands respect and gratitude to whoever gives it. This sentiment, in
which all that is received is a gift, is intensified in an attitude, which is religious and
specifically human which can be seen in the Divine Being who is the origin and is the origin
of all gifts as he is supremely rich. Thus, he gives and is the creator. His act of creation was
done gratuitously, he has created all things and is present in all things in so far as all things
contain God in their being.

 Third source of riches or wealth is usurpation which consists in removing from someone what
belongs to him and appropriating it for oneself.
 It is obvious that this manner requires a violent action, a method of resolving conflicts based
not on justice and reason and the market economy but in force, violence and the dominion of
the strong over the weak.
 It does not consist in giving what has been produced in exchange for something but in
removing, and for example, obliging others to work for oneself, converting them into slaves
and not paying what is due to them or simply in the act of robbing. A usurper is someone who
occupies the place of another and appropriates his goods, going against justice.
 This recourse can be done according to a certain right, which is to be a victor over another,
used as a precondition in order to remove from another his goods: it is a way of fighting and
of undertaking a war. Force is used in order to win. This manner of proceeding is exactly the
law of the strong but applied to economic methods.
 As has been mentioned, the law of the strong is always applied following certain rules, even if
the strong always has to be victor and dominates the decision. It is a despotic means of
human relationships from which springs the primacy of the strong.
 Economic activity is prone to using this type of system. Wars have happened by using the
law of the strong with this law often being the motive. The recourse to usurpation and
submission of the losers over the victors.

 The fight towards the possession of material goods places before our eyes the existence of human
inequality. Inequality is not the same as being different. Being different not only is inevitable, but
is necessary, good and healthy. All men are different from each other in an enormous number of
aspects. This diversity is bountiful, and arises from the distinct situations and passive actions of
each one, and also of freedom. Inequality, on the other hand, can be understood as unjust
difference, that is to say, hurting the rights of one in favor of another, especially in what refers to
the allocation of wealth and material goods.

 The problem of equality is due to the just (or unjust) distribution of goods, a misallocation of
wealth, especially for those which rightfully belongs to another. It is a problem of distributive
justice which corresponds to the realm of ethics. Even this may be mentioned only briefly,
achieving equality among men constitutes a formidable and difficult task. Political and social
ideas are based many times in the search for equality, especially in economics. The law of the
strong precedes this central value. Equality is reached through an adequate distribution of

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production, another important economic activity which is governed by the criteria of justice and
equality.

CONSUMPTION, PROPERTY AND INVESTMENTS

 Consumption is an act by which man is immediately the receiver of the utility which some
material good has To consume is to take advantage of a good, to use up the utility that can
obtained from the good

 One acquires a good through an act of exchange. Upon doing this act of exchange, one becomes
the owner of the good. It becomes one’s property. The right to property comes as a natural
consequence of the manner by which a person works and lives in the world. Man is a property
owner by nature, and if this were not possible then he would not be able to work and to live. If
this is the case, then a humane world would not be possible. Nevertheless, one’s use and private
acquisition of instruments cannot pervade the totality of the use of such goods.

 These truths have economic consequences. It is necessary to explicitly know the distinction
between two types of goods: material (infrastructure, greenery in a city, energy, air, water, cable
system, etc.), spiritual and rational goods (laws, tradition, wisdom, information, etc.). The second
one is expressed through the first and are a support and form cultural goods. It is from the cultural
aspect of such goods that they become common.

 Something becomes a private good in 2 manners:

 1st. As an appropriation, they can be repatriated, ie. private lands

 2nd. As a participation, ie. roads, as well as rational and spiritual goods, materialized through
works of culture by the community , i.e. religious ceremony, learning a language, reading the
newspaper, etc.
 Participation in common goods becomes a human necessity and is essential for one’s well-
being

 The act of appropriation which is essential to making something to be considered as private

property demands having the right to exclude others from the concrete use of those goods which is
appropriated for the private consumption of the owner, it is not something common. In order to
consume something, it first has to be one’s property. Private property is th only manner through
which men can satisfy their primordial needs and enjoy peacefully their well-being without
destroying social life. It is in this manner that we say that private property is a legitimate system
through which material goods are partitioned.

 From this perspective, we can see how unacceptable and utopic are the two extreme postures
related to private property: one that aims to abolish as in the example of communism as well
as the liberal economic thought which claims that all goods are private.
 Mainstream economic thought considers certain goods to be public and private. The
differentiation is based on which agent accounts for the cost accruiing (i.e. production,
distribution and allocation) of such good.
 Private goods are excludable (can be repatriated or appropriated) and rival
(consumption of the good leaves-off consumption of it by another).
 Pure public goods are non-excludable and non-rival. This means that due to the nature
of the good, it cannot be repatriated, nor can consumption of it leave-off consumption by
another.
 Examples of pure public goods are defense, air, water. Recently, the economic
literature has seen the need of looking into how the assignment or repatriation of
such public goods can be done so that private individuals absorb the cost of
conserving them. This has brought about the need to understand who is accountable

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for the cost of goods with both a positive and a negative externality. Thus, some
goods are really considered both public and private in economics.
 Due to the presence of goods and activities with externalities (i.e. consumption of the
good, or, the mere act of producing the good brings about other services and goods
which have economic value).
 Among the examples of goods which are essentially private in nature but are
considered as both public and private is education (primary, secondary, tertiary,
research and development), health, environment.
 There are goods which in the past have been considered public are infrastructure
and public health. The excludability and rival nature of such goods gives it a private
component.
 The public-private nature of such goods makes the provision of such a good a matter
of deep study. The main cause of the problem is the distinction as to who bears the
cost of its production and maintenance. Free-rider problem.

 The motor of the economy is the human capacity to foresee future needs. In order to foresee
future needs, a person has to buy and save. The best form of saving is investing which consists in
foregoing a certain present good under the expectation that a higher form of utility can be achieved
in the future but whose value is uncertain. Institutional support for investments such as banks,
stock exchange. Any form of investment consists of a risk.

 It is evident that nowadays, a private person can be an owner and as a consequence is capable of
saving, buying and investing. These are the three ways by which one can dispose of the capital,
also called endowment, which one has come to own. This is gained principally through one’s
professional work, the most universal and versatile source of wealth.
 Here we see two dimensions in the life of each person. A part of one’s lifetime is dedicated
to one’s professional work which is dedicated to gaining private property so as to consume,
save and invest. Another is retirement, which is to live from one’s investments which have
been gained after having worked or practiced one’s profession.
 Human capital as an economic concept.
 Capital is a stock which has value as a source of current and future flows of output and
income
 Human capital is the stock of skills and productive knowledge embodied in people. It
refers to the productive capacities of human beings as income producing agents in the
economy.
 The yield or return on human capital investments lies in enhancing a person’s skills and
earning power, and in increasing the efficiency of economic decision-making both within
and outside the market economy.
 Ownership of human capital in a free society is restricted to the person in whom it is
embodied.
 The exchange of human capital services is best analyzed as a rental market transaction:
income and output flows such as wage payments and earnings.
 Net time investment on education = {Benefits derived from investing on education now}
less {Earnings foregone due to schooling}. Has consequences on occupational choice.
Learning from experience. Evaluation of training programs

 At the same time, salary is the criteria for stratification and social image, as it is a mark of one’s
capacity to acquire goods. A person therefore tends to search for the betterment or improvement
of his professional status as a means of improving his quality of life, principally because it
signifies having a better salary. The current pathological state of society is when money is seen as
an objective or mission in itself, i.e. it is seen as the end of work. It is a pathological state to make
one’s life-orienting end as the mere improvement or increase in one’s salary. A consumerist
society is seen as an evil in society.
 A widespread myopic view of consumption may hinder investments into areas which have
long term results and which can even lead to benefits to society.

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