The economy is the process of people exchanging things amongst themselves, so that each person can have things that they need and want, even if they are not able to directly obtain or make those things by themselves. While these exchanges usually involve money, money is only a medium that enables the exchanges to occur; the actual outcome of economic activity is the exchange of its products.

The products of economic activity fall into two groups: goods and services. Goods are physical, material things such as cabbages, computers, or cars; services are non-material things such as designing a house, storing money, writing advertising, or cutting hair.

Going by these descriptions of goods and services, they seem to be two completely different and utterly separate things. Despite this seeming fundamental separation, goods and services cannot be completely separated, and, in fact, are closely intertwined. Services cannot be provided without the use of goods, and goods are the result of services that have been performed on the resources provided by the Earth. All of our economic activity, whether its outcome is goods or services, is ultimately underpinned by the resources provided by the Earth and its environments.

All services incorporate some goods when they are performed: house designers have to buy computers, desks to put them on, and offices to put the desk in. Even the purest services, such as providing advice or entertainment, require the service provider to use goods.

A person providing advice requires goods such as a phone for contact, and transport such as a car to get to a client meeting. A person providing advice also requires the existence of a whole world of economic activity that involves goods, to provide a subject for them to give advice about.

An entertainer requires the existence of a whole world of economic activity that involves goods, so that a paying audience for their activities can exist. Services cannot be provided without the existence, and use, of goods.

All goods are produced from resources provided by the Earth and its environments. Activities are performed on these resources to convert them into the goods that we need. These activities are effectively services; they may even be actual, individually paid for, services. For example: a tree in a wild forest is a resource provided by the Earth and its environments; it is considered to belong to no one and to have no initial intrinsic value. To convert that tree into a good it must be cut down (a service), milled (a service) the timber crafted into something (a service) and sold (a service). At each stage value is added to the original resource (the tree) by the service performed.

The value of the end-product good is the total value of all of the services that are used to produce it from the raw resources taken from the Earth and its environments. The raw resources that underpin that value don't add to it, because before the resources are taken from the Earth they are usually considered to have no intrinsic value. The material part of goods comes from the resources provided by the Earth; the services performed on those resources are what turn them into goods, and give them economic value.

Individual people who have goods to exchange are really only offering services: their labour. If someone has a hunted rabbit to exchange, then what they are really offering is their labour in catching the rabbit: they didn't make the rabbit; the rabbit already existed as part of the natural world. The materials that goods are made of are always pre-existing; people can only add value to the material with their labour, a service.

Goods and services are closely interconnected. The production of both goods and services are based on the use of the resources provides by the Earth and its environments, whether the final product to be consumed is a good that directly incorporates some of those resources, or a service that uses those resources indirectly.

This page is linked from:

resource use and economic activity 

economic activity

what the economy is

how resources are used in economic activities 

why the economy is consumption

decoupling the economy from resource use

decoupling with a service economy

human population

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