Scarcity: the Universal Problem

Scarcity, the Buddhist Monk and Les Miserables by J. J. Arias

One of the central concerns of economists is the allocation of scarce resources among competing uses. Because of scarcity each society faces the “economic problem” of maximizing human welfare given resource constraints. The purpose of this handout is to emphasize that this problem is part and parcel of human existence. A fallacy that you may encounter in the future is that economic principles and the problem of scarcity are only applicable to market economies, Western culture, materialistic or “consumer” societies, et cetera. However, humans in all cultures and time periods have had to decide how to allocate their scarce resources.

In particular, let me address the notion that scarcity is only an issue for individuals and societies that are haughtily characterized as greedy, selfish, materialist or consumer- driven. As a counter example, consider the Buddhist monk Kwo who gets “utility” or satisfaction from meditating and maintaining a rock garden. Kwo has a problem because both of these activities make him happy or enlightened, yet he only has twenty-four hours in a day. In other words, his time is scarce, and there is an opportunity cost for both meditating and rock gardening. One more hour meditating is one less hour beautifying the rock garden, and one more hour gardening is one less hour meditating. Kwo solves the problem by selecting the optimal combination of both activities that maximizes his satisfaction or self-interest.

Realize that when economists refer to self-interest they are often simply referring to the things that a particular person cares about. Kwo, who cares about enlightenment through meditation and beauty, is behaving with as much ‘self-interest’ as an upper middle-class suburbanite who wants to buy the latest SUV. In other words, an individual’s preferences or self-interest may lie anywhere along the altruistic/selfish spectrum. Having said this, most economists would probably agree that as a practical and predictive matter, it is safe to assume that individuals care most about themselves, their family and a small group of friends. This is not necessarily a bad thing since these are the people who we know the most about, and therefore who we can help the most. (Beware of strangers who say they have your best interest in mind!)

Therefore a highly altruistic person must also wrestle with scarcity. Consider the character of Monsieur Myriel in Victor Hugo’s Les Miserables. Monsieur Myriel receives an annual income of fifteen thousand francs, or livres.

The very day he took up his residence in the hospital building, he resolved to allocate this sum once and for all to the following uses. This is the estimate he wrote. For the little seminary, fifteen hundred livres. Mission Congregation one hundred livres… Maternal charitable societies, one hundred livres… For the improvement of prisons, four hundred livres. For the relief and release of prisoners, five hundred livres. For the liberation of fathers of families imprisoned for debt, one thousand livres.

1 Additions to the salaries of poor schoolmasters of the diocese, two thousand livres… For the poor, six thousand livres. For my personal expenses, one thousand livres. (pp. 5-6)

Although Monsieur Myriel would be considered altruistic by most people, he still must decide how to allocate his scarce income so as to maximize his self-interest, which includes the poor, prisoners, the church, etc. Because of his income constraint, giving more to prisoners entails an opportunity cost of giving less to his next best alternative, be it the poor, the church or he.

Both Kwo and Monsieur Myriel have preferences that they are trying to satisfy, both face resource constraints – time in Kwo’s case and income in M. Myriel’s case – and therefore both must deal with the reality of scarcity and opportunity costs.

Application Question (Heyne, Boettke and Prychitko 1994)

When Mother Teresa used her $190,000 Nobel Peace Prize to construct a leprosarium, she was a) behaving irrationally. b) behaving selfishly. c) violating the fundamental laws of economics. d) pursuing her self-interest.

Reference

Henye, P., P. Boettke and D. Prychitko. 1994. The Economic Way of Thinking, 10e. Upper Saddle River, NJ: Prentice Hall.

Victor, Hugo. Les Miserables, trans. Lee Fahnestock and Norman MacAfee (New York: Penguin Books, Signet Classic, 1987)