Section 2

Chapter 1

The basis of economic activity

We have seen, then, the negative side of what I am calling the "economic relationship" based on self-determination: we are contradicting our own selves as self-determining if we interfere with the self-determination of others. As I mentioned, the positive side of this relationship is that if we want another self-determining being to help us in our self-determination, we have to help him achieve his own goals, and so compensate him for wasting his time in helping us.

It is this that is the basis of economic activity, not, as the economics textbooks tell us, "the allocation of scarce resources to fill insatiable human needs." There's a difference between economic activity and practical activity. Robinson Crusoe, stranded on his deserted island, was certainly engaged in marshaling the things he found on the island to see to his shelter, food, and clothing; but this was practical activity, not economic activity. He was no more engaged in economic activity than the week-end woodworker is engaged in economic activity when he goes down into his shop on a Saturday morning and picks out some wood from his bin and makes his kids a playhouse. He did engage in economic activity earlier when he bought the tools and the wood; but once he has them, his "allocation" of these resources to fit his "needs" (his wants) is simply practical activity.

Let me, therefore, make the following distinction:

Practical activity is use of things to be able to perform essential acts or achieve one's goals.

Economic activity is engaging in transactions to be able to perform essential acts or achieve one's goals.

"Essential acts" and "goals" are defined, of course, as they were in Chapters 2 and 3 of Section 7 of the Third Part 3.7.2 3.7.3, when discussing necessities and values, which, as you will recall, are means to each respectively. The point here is that you don't have economic activity unless you have a transaction between people; and a transaction, as we will see, involves what I indicated above: each person gives something up (either some object or money representing an object, or some act of his), and each gains what the other gives up. Hence, economic activity involves precisely a relationship between people, not a relationship between people and the things of this world.

For instance, you are engaging in a transaction if you swap a day of teaching your friend about Plato for a day of his teaching you about the intricacies of football. Neither of you uses any objects of this world; you simply tell the other person what you know; but you have made an exchange, which could even have been one involving money, as if, for example, he had taken a course from you on Plato, and then you signed up for a course from him on football strategy. Any economist would agree that the latter would be economic activity, because money changed hands (and, as it happened, changed back again); and all I did in the former example was eliminate the money and use barter for the transaction. So economic activity is not necessarily the allocation of resources (in the sense of material things) at all, and not all allocation of resources (when you already own them) is economic activity.