What Scarcity Is and Isn’t

Sequence summary: This is a series of 18 articles on the most fundamental concepts of economics: scarcity, opportunity cost, marginalism, and self-interest. These are the atoms, molecules, cells, the core things you need to have a grip on to move on with the science, and, if all goes well, we will move on, but first it is absolutely vital to get a strong grasp of the fundamentals. Though these are basic concepts, they are not easy to understand. If you want evidence of this, open a newspaper....

Previous: Imagining Scarcity

A familiar example of something scarce is ordering in a restaurant. There are so many enticing options, but you can only order one. You want more than what you can choose to have. Whatever option you choose, you could have chosen another one, and that which you did not choose is now beyond your reach. Even if you come back and order that other choice the next day, it’s not the same day, you’re not quite the same you. All this means that your options are scarce.

Or say you’re packing to go hiking. You have only so much space in your pack. That means if you want to bring the flashlight, you won’t have room for those extra snack bars, not if you also want to fit in the spare batteries for the camera. You have to pick one and make a tradeoff—that is, your space is scarce.

(Maybe you could bring a bigger pack. But that would be more unwieldy, and with all the stuff in it, it will be heavier. So there’s your tradeoff—more stuff, or a more difficult hike?)

And don’t forget, you need a tent. It rains pretty hard round these parts. Do you want to spend more money on the super high-tech tent with the poly-something supercalifragilistic anti-water technology? Or do you want the cheaper one, even though there’s a chance you might get wet? Again, you have to make a choice, trading off one good for another because your money is scarce.

If only you had more money! If only you had more space! If only you could carry more weight! If only more restaurants would offer a tasting menu so you could sample everything and not torture you with the eternal mystery of what all these fascinating things actually are!

All these things are scarce.

Now that we have some examples, we can pin down a more precise definition of what makes something scarce. But first, I’m going to state very explicitly what does not make something scarce. Space is not scarce just because you don’t have as much space in your pack as you want. Strength is not scarce just because you don’t have as much strength as you would like. Money is not scarce just because you don’t have as much money as you would like.

Your options are not scarce just because you cannot order from a tasting menu. In other words, what makes something scarce is not that there is less of it than you want.

Money, space, time, and energy are not scarce because you don’t have as much of them as you want. That’s part of what creates scarcity, but it is not scarcity in and of itself.

Think about trying to get that sand-sphere of your values to fit into the too-small hole. You have to remove some of the sand, and that sucks. But suppose that the sand is homogeneous, so removing one grain is the same as removing any other. So you remove the sand necessary for the rest of the sphere to fit into the hole, and....

Since the sphere is homogeneous, what’s the difference between having to remove some sand yourself and just having a sphere that’s small enough to fit into the hole?

Whether you think of it as a too-big sphere or a too-small hole, the problem’s the same: you can only fit so much of the sphere into the hole, just like you could order only so many things in a restaurant or fit only so many things into your pack. You want more, but you can’t have more, and that’s not what makes it scarce.

Something is scarce not when there is less of it than you want but when it has alternative uses.

Your ordering choices in a restaurant are scarce not because you want to try everything and you can’t, but because whatever you order, you could have chosen some other thing. What you do in that restaurant with your time, money, and the space in your stomach could have been some other thing. That means you have to think about which dishes you want to try the most and order those, forgoing the chance to try the other dishes.

The space in your pack is scarce not because more things won’t fit, but because you have to choose which things you’re going to pack. You have to think about what you want the most, knowing that any item you pack means you can’t pack something else. Your strength is scarce not because you can’t carry as heavy a pack as you would like but because you can choose to do alternative things with your strength, like having a faster or more pleasant hike. The money you could spend on a tent is scarce not because you want more of it, but because you can choose to spend it on alternative things.

It is the presence of alternatives that makes something scarce, and that’s why the homogenous sphere of sand is not scarce. There are no choices to make, no alternative uses the sand can be put to; there’s no difference between choosing to remove one grain versus another. There is no difference between having to make the choice to remove sand versus just having less sand to begin with (disregarding the brief time and effort of brushing the sand away).

You want more sand. Every grain is one of your values. But it is only because each grain of sand is different, it is only because there is a meaningful sense in which you can choose which values to retain and which to sacrifice that there is scarcity, choice, and foregone opportunities, - the core elements of economics. It all begins with a choice: this value, or that? This alternative, or that one? A mere lack of sand is insufficient....

This is why I don’t take promises of a post-scarcity society very seriously. They seem to think in terms of leaps in production technology, as if the key to ending scarcity is producing lots and lots of stuff. But scarcity is the presence of alternative uses, not the presence of want, and making lots of stuff does nothing to address the former per se. Picard, who can make as much tea as he wants in his replicator, must still make choices.

Next: more on the relationship between cost and scarcity....