Economics is the science of production and trade under a division of labor (market) society.
The economic actor — the entity that performs all economic decisions and actions — is the individual.
A given individual may assume a variety of economic roles during their life or may specialize in one or more roles: as a consumer, as a producer, as a financier, as an employee or laborer, as a manager, and most importantly as an entrepreneur/capitalist, etc.
All organizations are groups of individuals. All organizations — shops, unions, businesses, corporations, nations, etc. — are an organized group of individuals in specific roles with specific relationships and responsibilities. In all such cases, it is individuals who are making the decisions and taking action, either individually or in coordination with other individuals based on their hierarchical roles and responsibilities.
A value is something one acts to gain and keep (to support ones “life as a rational being”, including all that that term implies.)
Values can include: food, air, water, a house, a car, education, friendship, art, love, etc.
Production is the act of creating — shaping materials into values –– goods and services for future consumption.
Consumption is the act of consuming or using (up) values.
Wealth is a material good or service that has value to human life (that has economic value.)
Examples of material wealth can be goods for personal consumption (consumer goods) like food or a house; or goods used for the production of other goods (capital goods), such as tool or a factory; or services such as those rendered by a doctor, or musician at a live concert (consumer services), which are consumed instantaneously on production, or services rendered for the production of other goods (human capital).
In a division of labor society, individuals create values for future trade as opposed to self-consumption.
Writes Adam Smith on the importance of specialization and the division of labor in his book The Wealth of Nations:
“To take an example, … the trade of the pin-maker; a workman not educated to this business (which the division of labour has rendered a distinct trade), nor acquainted with the use of the machinery employed in it (to the invention of which the same division of labour has probably given occasion), could scarce, perhaps, with his utmost industry, make one pin in a day, and certainly could not make twenty. But in the way in which this business is now carried on, not only the whole work is a peculiar trade, but it is divided into a number of branches, of which the greater part are likewise peculiar trades. One man draws out the wire, another straights it, a third cuts it, a fourth points it, a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on, is a peculiar business, to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them.”
“I have seen a small manufactory of this kind where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore but indifferently accommodated with the necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day. There are in a pound upwards of four thousand pins of a middling size. Those ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day. Each person, therefore, making a tenth part of forty-eight thousand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day; that is, certainly, not the two hundred and fortieth, perhaps not the four thousand eight hundredth part of what they are at present capable of performing, in consequence of a proper division and combination of their different operations.”
“In every other art and manufacture, the effects of the division of labour are similar to what they are in this very trifling one; though, in many of them, the labour can neither be so much subdivided, nor reduced to so great a simplicity of operation. The division of labour, however, so far as it can be introduced, occasions, in every art, a proportionable increase of the productive powers of labour. The separation of different trades and employments from one another, seems to have taken place, in consequence of this advantage. This separation too is generally carried furthest in those countries which enjoy the highest degree of industry and improvement; what is the work of one man in a rude state of society, being generally that of several in an improved one.”
Trade is the act of voluntarily exchanging one value for another. (Theft is when the value is exchanged involuntarily).
Under Capitalism — the social system based on individual rights — one may obtain property from others only by their voluntary consent. By banning the initiation of physical force from all relationships (compulsion), capitalism leaves only one way for people to deal with each other: through the peaceful means of persuasion, by appealing to another’s self-interest. This form of dealing with others is the highest form of voluntary social cooperation: trade.
A trade is a voluntary exchange of values between two (or more) parties for their mutual benefit. In a free-market, trade only takes place only when the seller and the buyer agree to the same terms of exchange free from the threat of physical violence and fraud.
Voluntary means that either party initiates no force; that both parties enter the trade of their free-will. That is with no guns, knives, or fists pointed at their heads, hearts, or backs.
Mutual benefit means that both parties benefit since they think they both think are will be better off by trading then if they did not.
For the buyer, trade means that one is free to buy on whatever terms the buyer finds agreeable. If the buyer does not like the seller’s offer, the buyer is free to refuse, and is free to go somewhere else, or is free to produce the good himself, if so able. No one is morally allowed to physically force the buyer to change his terms of buying, by threatening to expropriate the holdings of the buyer’s bank account, or by threatening to imprison the buyer, if the buyer does not voluntarily agree to the terms.
For the seller, trade means that one is free to sell on whatever terms others voluntarily agree to. If the seller does not like the buyer’s offer, the seller is free not to accept them and is free to find another buyer. No one is morally allowed to physically force the seller to change his selling terms, by pointing a gun to his head, or by threatening to fine him a million dollars a day, or by threatening to imprison the seller, if the seller does wish to change his terms of sale for his property.
Barter is where a good/service is exchanged directly for another good/service for consumption, i.e., not for further trade.
The price of a good or service are the values it is exchanged for.