A Principle for Action

Abstract

The chapter discusses the different kinds of rationality and points out the limitations of the idea that economic entities are purely rational. Goals and objectives are defined, and a distinction is made between effectiveness , efficiency and economic efficiency . The point is made that there are different kinds of efficiency—economic, technical and political. The principles of maximum return and minimum means are presented as approaches to the conversion of inputs into outputs. The difference between economic efficiency and profitability is made clear and four combinations of these two concepts are outlined. Different kinds of economy are discussed: the economy of needs where the principle of solidarity is important, the economy of returns where financial goals have priority, the economy of self-interest and of common interest. Finally, the individual and the aggregate economy are presented.

To think is easy. To act is hard. But the hardest thing in the world is to act in accordance with your thinking.

Johann Wolfgang von Goethe (1749–1832)