Economics is simply the study of the relationships among various human actions. Economics is inspired by a few commonplace observations.

The first observation is that choosing among alternatives means that some alternatives are not taken. Whatever benefits might have come from the alternatives are sacrificed. Choosing to spend a day at the beach means that same day cannot be spent in the mountains or anywhere else. Economists call this opportunity cost.

The second observation is that people choose alternatives which they think will make life more agreeable. This includes both self-interested and idealistic choices. Regardless of the degree of selfish or idealistic interest, people always choose what they believe is the best alternative available.

The third observation is that, when everyone is making choices among alternatives, a systematic structure of society emerges. No one designs this systematic structure, it just results organically as the consequence of many individual choices. Economists call this spontaneous order.

Economics is simply the study of how individual choices cause changes in the spontaneous order and how the resulting structure of society causes changes in individual circumstances and people’s subsequent choices.

This might all seem like an irrelevant academic exercise save for one thing: the choices we make to make our lives more agreeable often have unintended consequences. The resulting changes in the spontaneous order may make life less agreeable. Deciphering the laws of economics allow us to understand these relationships, make better choices, and live more agreeable lives. But how do we decipher the laws of economics? Let's start with a very simple observation:

Everything we consume must first be produced. Wealth, whether individual or in aggregation, comes from production. But we can't individually produce everything for ourselves. Mostly we exchange what we produce for what others produce. When two people agree to an exchange, they also agree to an exchange rate. When there are many producers and many exchanges, a market is said to exist. A market is an example of spontaneous order. And when markets exist, market rates come to exist. Market rates change as supply and demand change.

Wealth is simply our potential to exchange what we have for what we want. Wealth comes from producing goods and service that other people want. Wealth is not distributed - it is produced.