Author's Note: This is the final installment of the series "In The Short Run." (Part 1, Part 2, Part 3, Part 4) John Maynard Keynes, perhaps the most famous economist of the 20th Century, famously said, “In the long run, we’re all dead.” The purpose of this series is to propose that in the short run, we are all alive, and economics can teach us to live well.
“It is not better for humans to get all they want.”
Heraclitus, one of my favorite old Greek philosophers, coined this idea, and I’ve been mulling over it for quite some time. I believe it’s true. I’m an economist. My entire science rests on the idea that people are self-interested and are striving to get all that they desire; yet, I agree with Heraclitus that satisfaction must be rationed. If our insatiable desires were quenched, entire stores of resources would be obliterated and the world would have quite a bleak future. While people are self-interested, they must be good stewards of the resources they have and ration their desires.
The most efficient system to ration goods is via prices. Prices efficiently assign values to goods based on their rarity and popularity. Rare and popular goods, which must be rationed for preservation, have higher prices. Higher prices result in less exchange of these goods, therefore conserving them. We can see prices’ success in the market system. Free markets, which are based on prices, lead to more efficient trade and increased economic growth. Conversely, communism failed because its lack of prices. No prices led to misallocated goods, resulting in multi-hour long lines just to get bread. Prices ration goods and efficiently connect willing buyers with willing sellers; without prices, we are lost.
Prices are not only what you see in grocery stores but are connected with everything in life. Everything you do has a price or, to use an economics term, an “opportunity cost.” Whatever time, money or effort you spend could have been spent on something else. This ‘something else’ is the opportunity cost of your actions. Even going to a free company lunch is not free in economic terms (as an old economic adage goes, “there’s no such thing as a free lunch”). You could have spent your time elsewhere, not at the lunch. You forfeited that opportunity – that is your cost.
Thus, everything has a price. When you begin to look at life through this lens, your behavior changes. When you begin to impose on yourself the implicit prices hidden throughout life, you can increase your own efficiency.
A first area is budgeting. This might seem obvious, but spending money has a cost. Your money is a limited resource, and using it has a price. Buying a $21 steak will cost you three $7 chicken breasts. Spending money costs you not only the actual cash but also the opportunity to buy something else. Thinking of these relative prices will allow you to become a better budgeter.
Time also has a price. Every second contains within itself the implicit opportunity cost of a different activity. Leisure is generally what we like best – it’s equivalent to spending money. By budgeting leisure time, you can be more efficient. If you know that you have around 20 hours dedicated to leisure each week, you can properly “spend” your hours. Hours of leisure cost you an hour of work; an hour of work buys you an hour of leisure. Spend your time accordingly.
A third facet of life with a price tag is your body. In order to maintain a healthy, fit body, eating and exercise must be balanced. Eating food has the cost of working it off. Food is needed and good – as is spending money – but eating more requires more working out. Likewise, staying healthy and functional requires sleep. Staying up later today requires the cost of more sleep sometime down the line.
The crux of this article is that you are a limited resource. Money constrains your desires; time constrains your opportunities; bodies constrain your abilities. You are not limitless, and since you are not limitless, everything you do has a price. This isn’t meant to be depressing but rather inspiring, for prices are good. Prices allow us to choose the most efficient and beneficial options for ourselves, just as they efficiently sort shoppers and benefit buyers. Use prices to use yourself efficiently, you deserve nothing less.
