I used to brag to my classroom students, back in the day, about our excellent set of definitions. They are so incisive and consistent, I'd tell them, that once you know the definitions, you can infer everything you need to know about political economy! Now, that may be a bit of a truism -- but, y'know, sometimes truisms can be true!

Many potential students come to Understanding Economics seeking clarification of economic definitions -- and it's no wonder, for the glossaries offered in most Econ courses aren't the least bit consistent or clear. Let's take a moment and consider some of the definitions and quandaries that typically stymie people.

WEALTH

All material things produced by labor for the satisfaction of human desires and having exchange value.

Wealth seems to be a rather basic concept in economics, but what is it, really? If I have a thousand dollars in cash in my pocket, I would consider myself rather wealthy (for the moment) -- yet if that paper money were to fall out, get run over by seventeen trucks or burned in a fire, would there be any less wealth in the world?

LABOR

All human exertion in the production of wealth and services.

Is labor that what ditch-diggers do? Lawyers? Movie stars? Members of Labor Unions? If I work hard to train for running a marathon, is that labor? And what to we call the funds (or in-kind considerations) that we get in return for labor?

LAND

The entire material universe exclusive of people and their products.

Often it seems that Economics doesn't want to talk about land, yet it seems pretty important. But what is it, really? Just the solid surface of the Earth? How about oil in the ground, fish in the ocean, broadcast frequencies, the 99th floor on my block? (Oh, and by the way: if I own the land under my house, is that wealth?)

CAPITAL

Wealth used in the process of production, which includes wealth in the course of exchange.

Capital could be the most confusing one of all. Is capital the class of owners, who exploit the workers? Is it the tools and machines that workers use? I suppose I could think of my ten hundred-dollar bills as my capital -- couldn't I? How about the oil I pump up out of may land and sell -- is that capital?

We could go on and on. Let's try just one more:

TAXES

If the government paves a road to my house, and I help to pay for it, is that a tax? How about if the community forces me to pay 10% more for stuff I buy? I like to try my luck at the state lottery, and the state profits from ticket sales -- is that a tax? What's the point of taxation, anyway, and who ought to pay it?

It is all too common for economists to muddy the waters by not defining their terms, then by using them in shifting ways. The Progressive Era political economist Henry George defined his terms carefully in advance, and sticks consistently with his definitions. Our first job at Understanding Economics is to make sure we're clear on what we're talking about. You will be amazed how much that serves to clarify our understanding of key questions.

Here are the basic factors of the production of wealth and their functions. Click here for an exercise on how useful clear definitions can be.
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