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Economics is the "study of the allocation of scarce resources which have competing uses" (Lionel Robbins). Like every society, the survivors of Oceanic Flight 815 must allocate their resources so as to make themselves as well off as possible. Most of the time, being "better off" means surviving another day, and this requires careful planning on both the part of the community and the individual.
The Losties must decide as a community what they will produce, who will produce it, and how much will be produced. A number of solutions to this problem exist:
"Live together, die alone."
Jack represents the socialist approach to resource allocation. Jack is a mostly benevolent person who attempts to solve the problems of the Island imposed by scarcity, even to the point of personal exhaustion. Jack's surname, "Shephard," reinforces this interpretation - he exists to care for and organize the survivors.
On the day of the crash, Jack was essentially elected as an unofficial leader, because of his quick-thinking skills as a physician and the lack of any other suitable candidates putting themselves forward.
Leadership is not the only advantage of centralized ordering of society's resources. A necessary condition for decentralized resource allocation to be efficient is the existence of competitive marketplace conditions (i.e., many suppliers and many buyers), complete information, and most importantly, well-defined property rights. But on the island, property is undefined, since anyone can take something from anyone else. Also missing is a developed form of currency. This makes exchanges highly inefficient since they rely mainly on barter, which has its problems. Thus, in light of the limitations imposed by their situation, an argument can be made that Jack's form of leadership and resource allocation provides adequate solutions to the problems of a decentralized order.
Resources whose consumption is vital but which are accessible by anyone are vulnerable to over-harvesting and exploitation. This is popularly referred to as tragedy of the commons, a term coined by ecologist Garrett Hardin. This problem, from the capitalist point of view, is a result of poorly defined property rights, which is a problem on the island.
Since no one owns the water bottles that the Losties use to store water, the theory predict that islanders drink too much water. Specifically, individuals drink water up to the point where the marginal benefit of the last sip equals the marginal cost. But because of the absence of property rights, the marginal cost of drinking water is too low. This is because the private costs of drinking have diverged from the social costs, and individual members of this Island economy have allocated too much of their water to current consumption, and too little for future consumption. The solution proposed by Jack is barring access and rationing the resource. Without rationing, self-interested behavior would have certainly led to over-consumption or hoarding of water. And a shortage or unequal distribution of water would have inevitably lead to social breakdown and ultimately violence.
"Every man for himself."
Sawyer is seen as representing capitalism. In this context, Capitalism is defined as an economic and social system in which the means of production are predominantly privately owned and operated for profit, and in which investments, distribution, income, production and pricing of goods and services are determined through the operation of a market economy.
Property rights play an important role in both market economies and LOST. Some philosophers, such as John Locke, have argued that ownership is created "where one mixes labor with capital" .
Property rights on the Island, however is a very questionable concept because the idea depends on concepts such as "homesteading," "salvaging" or the "right of capture," which are not necessarily capitalist. While individuals could be said to have a right to their own property from the plane, the concept that they could acquire property rights over airline property and the property of other passengers (living and dead) simply by taking possession is unique to this environment. Few economists or philosophers have ever outlined or promoted a system in which looting is considered a normal part of economic activity.
Strides have been made in understanding how imbalances in "power" can affect exchange. Game theoretic models, such as the Nash Bargaining Model, reveal the importance of threats in allocating resources. The fewer options a person has outside of the business relationship, the smaller the slice of the pie they will get in equilibrium. Sawyer arguably possesses considerable bargaining power by virtue of his extensive wealth of salvaged goods, and is therefore able to strike deals with parties that enable him to extract most of the gain from the exchange. He is limited only by the degree to which he can tolerate their collective dissatisfaction.
A recurring theme in the narrative is how Jack and others can get Sawyer to relinquish goods that will benefit some other member of the community. For instance, in "Confidence Man", Shannon succumbs to an asthma attack and needs medicine (almost certainly a Salbutamol-based steroid, such as Ventolin) which Jack, amongst others, believes to be in the possession of Sawyer. As far as Jack is concerned, Sawyer should surrender it for the good of the group. Sawyer feigns possession and will only give Jack the inhaler if he receives a kiss from Kate in exchange. That is, he wants to trade. This exchange does not end well for Sawyer (see Jack's approach).
There are similar scenes in the second season as well:
It should be noted that Sawyer's capitalism is mitigated by very occasional displays of compassion. These displays become more frequent as time on the island progresses:
Related to Sawyer's bargaining is the problem of exchange. For markets to function efficiently, transaction costs should be low or non-existent. On the Island, this is not the case, creating many problems when two or more people attempt to exchange. According to the Coase theorem, private parties can reach an optimal allocation through private bargaining regardless of how property rights are originally distributed if transaction costs are zero. Exchange should occur, even if all property is given to one person, such as is the case on the Island. That this happens so rarely on the Island suggests that transaction costs are too high to orchestrate such improvements. Why might transactions be so costly for survivors?
One source of the problem might be the absence of money on the Island. Money has the advantage of storing and measuring the value of goods, as well as its usefulness as a medium of exchange. Without it, Barter is the only mechanism by which trading can occur, but most individuals on the Island have little with which to barter. Bartering is known to be an inefficient system as compared to money exchange. Thus, in order to get something from Sawyer, individuals must enter into a series of trades with other survivors in order to finally acquire a good or service suitable for trade with Sawyer. In order for barter to occur, the following conditions must be met:
If these conditions are met, then exchanges can and will occur, but it is worth noting that a coincidence must exist. For example, it is by coincidence that Michael values Sawyer's equipment more than the empty space on his raft, and vice versa. Since a double coincidence of wants are rare by definition, many mutually beneficial exchanges cannot take place in a barter economy. Ironically, it may be the absence of a developed medium of exchange that is the source of constant antagonism towards Sawyer, who instead values services that rarely can be acquired via barter when double coincidence of wants is not met. For instance, no one can acquire Kate's kiss from Kate to give to Sawyer; only Kate can give Sawyer that kiss. Thus, if that is mainly what Sawyer wants, then few exchanges could ultimately take place, and antagonism toward Sawyer might result in equilibrium.
LOST reveals important strengths and weaknesses of both economic systems.
On the Island, Sawyer fiercely guards his right to hold the belongings he acquired from the fuselage wreckage. Although Sawyer shares his strong belief in his own property rights with capitalist theorists, he acquired his property through means that would be criminal in a traditional capitalist society. Sawyer not only claimed property from the dead, but he also stole property from other survivors. His view toward property rights could thus more justly be compared to a monarchist view where one individual's property rights are considered to be more important than another's.
On the Island, Jack argues for a more equal distribution of resources, an argument that bears superficial resemblance to the theory of socialism. On closer inspection, however, differences emerge between the two views. Socialist theory holds that the state is to be the agent of collective redistribution. On the Island, no state system exists. Socialism also holds that all resources are owned by the state, and again no state exists. Jack's view -- particularly as expressed in his "Live Together, Die Alone" speech -- may thus be closer to a tribal, collective, survivalist economy than to socialism.
"If you'd like to join us, it's a free island... I'm not Jack. The more, the merrier."
The central thesis of this critique is that the Island population is too small to allow for the formation of the rule of law or a state, both of which are essential to capitalist and socialist economics. Without the rule of law and a state to enforce it, property rights are meaningless. Socialism requires a state to act as the agent of resource distribution.
The only economic system available to the survivors of Flight 815 is thus a return to the tribal, hunter/gatherer subsistence system that has dominated human economic patterns for most of history. Under this system, resources are shared collectively and are seen not as the property of either individuals or the collective, but rather as gifts won from nature's bounty. This system contains many elements of what is known in economics as the gift economy.
Sawyer's refusal to participate in the gift economy of the Island may have more to do with his psychological inability to trust (and thus be reciprocated) than with his robust faith in a capitalist system.
Because the Island's economy is the most efficient under the circumstances, Jack's acceptance of the gift economy may be the result of pragmatism rather than commitment to a socialist and/or egalitarian ideal.
In Season Two, the majority of the Losties' wealth was not created though either socialist, capitalist, or tribalist means, but inherited from the builders of the Swan. The economic advantages of electric power, running water, night lighting and multiple guns were not created by the Losties but inherited from those who came before them. Consequently, it could be argued that the Losties value the inherited goods much differently than they assess the value of everything else on the Island.
In Season Four, the entire group was divided into two factions because of the presence of the Freighters on the Island. Jack, believing that the Freighters were there to rescue the Losties, became the leader of his group. Locke, confident that the opposite was true, led his group to the abandoned barracks, once occupied by the Others. His group inherited a new supply of food & water, not to mention several furnished homes and electric power.