What is Economy? What Does It Do? How to Learn?
Few people would argue that they know a lot about economics, perhaps seeing it as a complex and esoteric subject that has little to do with their daily lives.
Often considered to be the protection of professionals in business, finance and government.
Yet most of us are becoming more aware of its impact on our wealth and well-being, and the increased cost of living, taxes, government spending, etc. We can also have ideas about - which are usually quite powerful.
Sometimes these opinions are based on immediate reactions to an item in the news, but are also often the subject of discussion at the workplace or at the dinner table.
So we are all interested in economics to some extent. The arguments we use to justify our ideas are often the same as those used by economists, so better knowledge of their theories can give us a better understanding of the economic principles that play a role in our lives.
Economy in the News
Today, as the world is in economic turmoil, learning about the economy seems more important than ever.
Far from occupying a separate section of our newspaper or constituting a small section of television news, economic news now makes headlines regularly.
As early as 1997, US Republican political campaign strategist Robert Teeter pointed out his domination, “Look at the decline of television coverage [of politics]. Look at the falling votes. Now it is not politics but economy and economic news that are driving the country. “
Yet how much do we really understand when we hear about rising unemployment, inflation, stock market crises and trade deficits?
Do we know why when we are asked to tighten our belts or pay more taxes? And when we seem at the mercy of risk-taking banks and big corporations, do we know how they become so powerful, or do we understand the reasons for their original and ongoing existence?
The discipline of economics is at the center of such questions.
Management Study
Despite the importance of economics and its centrality in many issues that affect us all, economics as a discipline is often viewed with skepticism.
A popular understanding is that it is dry and academic due to its adherence to statistics, charts, and formulas.
Nineteenth-century Scottish historian Thomas Carlyle described the economy as "bleak science," "bleak, desolate, and indeed quite miserable and sad".
Another common misconception is that "it's all about money", and while it may be true, it's by no means the whole picture. So what is the economy all about?
The word is derived from the Greek word Oikonomia, meaning "home management" and refers to studies of our resources and more specifically the production and exchange of goods and services.
Of course, the business of producing goods and providing services is as old as civilization, but the study of how the process works in practice is relatively new.
It just developed gradually; Philosophers and politicians have expressed their views on economic issues since the ancient Greeks, but the first true economists to do a study on the subject did not appear until the end of the 18th century.
At that time the work was known as "political economy" and emerged as a branch of political philosophy.
However, those who studied their theories increasingly felt that it needed to be distinguished as a subject in its own right and began to call it "economics". This later became popular in the shorter "economy" form.
A Softer Science
Is economics a science?
19th century economists certainly liked to think this way, and even though Carlyle found it sad, even she honored it with the science label.
Many economic theories were modeled on mathematics and even physics (perhaps the "-ik" end of "economics" gave him scientific prestige) and tried to establish the laws that govern how economics behave in the same way as scientists.
However, economies are man-made and depend on the rational or irrational behavior of the people acting in them, so economics as a science has more in common with the "soft sciences" of psychology, sociology, and politics.
The economy was perhaps best described by the British economist Lionel Robbins.
In 1932, in his Writing on the Nature and Importance of Economics, he defined it as "the science that studies human behavior as a relationship between scarce means and ends that have alternative uses".
This broad definition remains the most popular definition used today. However, the most important difference between economics and other sciences is that the systems it studies are fluid.
In addition to describing and explaining economists and how they work, economists can also suggest how they should be built or improved.
The First Economists
Modern economics emerged as a separate discipline in the 18th century, particularly with the publication of The Wealth of Nations in 1776, written by the great Scottish thinker Adam Smith.
However, it was not the writings of economists that sparked interest, but the enormous changes that took place in the economy itself with the advent of the Industrial Revolution.
Previous thinkers had commented on the management of goods and services in societies, treating the questions that arise as problems for moral or political philosophy.
But with the arrival of factories and mass producers of goods, a new era of economic organization has come, facing the big picture.
This was the beginning of the so-called market economy. Smith’s new system analysis set the standard with a comprehensive account of the competitive market.
Smith argued that the market is driven by an "invisible hand" that the rational actions of self-interested individuals ultimately give the wider society exactly what it needs. Smith was a philosopher and subject
Part of his book was "political economy" - it extended beyond economics to include politics, history, philosophy, and anthropology. After Smith, a new kind of economic thinker emerged who chose to concentrate entirely on the economy.
Each of these is built on our understanding of economics - how it works and how it should be managed - and laid the foundations for various branches of the economy.
As the discipline evolved, economists identified specific areas to study. One approach was to look at the economy as a whole, nationally or internationally, which is referred to as “macroeconomics”.
This economic field deals with issues such as growth and development, measuring a country's wealth, international trade, taxation, and controlling inflation and unemployment.
In contrast, what we now call "microeconomics" looks at the interactions of individual individuals and firms within the economy: the business of supply and demand, buyers and sellers, markets and competition.
### Schools of New Thinking
Naturally, there were differences of opinion among economists and various schools of thought developed.
Many welcomed the prosperity of the modern industrial economy and advocated a "take-away" or laissez-faire approach to allow the competitive market to generate wealth and encourage technological innovation.
Others were more cautious in predicting the market's ability to benefit society and identified the system's failures.
They thought that these could be overcome by state intervention and argued that governments played a role in providing certain goods and services and curbing the power of producers.
In the analysis of some, particularly the German philosopher Karl Marx, a capitalist economy was fatally flawed and could not survive.
The ideas of early "classical" economists like Smith were increasingly scrutinized.
In the late 19th century, economists with science education were approaching the subject through the disciplines of mathematics, engineering, and physics.
These “neoclassical” economists defined the economy with graphs and formulas and proposed laws that govern the functioning of markets and justify their approach.
At the end of the 19th century, the economy began to develop national characteristics: economic think tanks grew as university departments were established, and there were marked differences between the large schools in Austria, England and Switzerland, especially in the desirability of some.
These differences became even more pronounced in the 20th century, when revolutions in Russia and China brought almost a third of the world under communist rule with planned economies rather than competitive markets.
But the rest of the world was interested in asking whether markets alone can be trusted for prosperity.
While Continental Europe and Britain argued about the degrees of government intervention, there was a real battle of wits in the United States during the Great Depression after the 1929 Wall Street Crash.
In the second half of the 20th century, the center of economic thought shifted from Europe. the US, which has become the dominant economic superpower and adopts laissez-faire policies more than ever.
After the collapse of the Soviet Union in 1991, the free market economy really proved to be the pathway to economic success, as Smith predicted.
Not everyone agreed. Despite the majority of economists believing in the stability, efficiency, and rationality of markets, there were some who were skeptical and new approaches emerged.
## Alternative Approaches
In the late 20th century, new fields of economics combined ideas from disciplines such as psychology.
and the theories of sociology and new developments in mathematics and physics such as game theory and chaos theory. These theorists also warned of weaknesses in the capitalist system.
The increasingly severe and frequent financial crises of the early 21st century reinforced the feeling that there is something fundamentally wrong with the system; At the same time, scientists have concluded that our ever-growing economic wealth is costing the environment in the form of potentially catastrophic climate change.
New economies emerged, particularly in Southeast Asia and the so-called BRIC countries (Brazil, Russia, India, and China) as Europe and the US began to deal with perhaps the most serious economic problems they have ever faced.
Economic power is shifting once again and new economic thinking will undoubtedly evolve to help manage our scarce resources.
One of the most important casualties of the recent economic crises is Greece, where the history of economy started and the word "economy" came from.
In 2012, protesters in Athens pointed out that democracy also comes from the Greeks, but is in danger of being sacrificed in the search for a solution to a debt crisis.
How it will solve the problems of the world economy will be seen, but armed with the economic principles outlined in this book, you will see how we got into the current situation and maybe you will start to see a way out.
Chronology of Economics
380 BC Plato describes the ideal state in which property is owned by everyone and labor is specialized.
350 BC Aristotle favors private property but opposes saving for his own good.
1265-74 BC Thomas Aquinas argues that the price of a product is "fair" only if profit is not excessive and there is no deception in the sale.
1397 Medici Bank was founded in Florence, Italy, one of the first financial institutions to build on international trade.
1400 Bills of exchange have become a standard method of payment in European trade, which can be repaid by commercial banks.
1492 Christopher Columbus arrives in America; Soon gold is flowing into Europe and increasing the money supply.
1599 An international trading company and the world's first global brand, The British East India Company, were established.
1630 Thomas Mun advocates a mercantilist policy using foreign export as a way of increasing a nation's wealth.
1637 A speculative bubble bursting in the Dutch market devastated thousands of investors.
1668 Josiah Child defines free trade - advocates increased imports and exports.
1682 William Petty demonstrates how economics can be measured in Quantulumcunque Concerning Money.
1689: John Locke argues that wealth comes from labor, not trade.
1697 Gregory King compiled a statistical summary of British trade in the 17th century.
1752 David Hume argues that public goods should be paid by governments.
1756 The Physiocrats, François Quesnay and his followers, claim that land and agriculture are the only sources of economic prosperity.
1758 Quesnay produces his Economic Table, which is the first analysis of the operation of an entire economy.
## Macroeconomics
As civilizations developed in the ancient world, the systems of providing goods and services to populations developed. These early economic systems arose naturally as various trades and crafts produced goods that could be traded.
People first started trading in barter and then with precious metal coins, and trade became a central part of life.
The business of buying and selling goods went on for centuries before anyone thought to study how the system worked.
Ancient Greek philosophers were among the first to write on topics collectively known as "economics."
In the republic, Plato defined the political and social structure of an ideal state, which he said would function economically by providing products for the public good by specialty producers. However, his student Aristo defended the concept of private property that could be bought and sold on the market. These are arguments that continue to the present day.
When philosophers Plato and Aristotle thought economics was a matter of moral philosophy: instead of analyzing how an economic system worked, they came up with ideas about how it should work.
This type of approach is said to be "normative" - it is subjective and looks at "what should happen" to the situation. While medieval philosophers like Thomas Aquinas tried to define private property and trade ethics in the market, the normative approach to the economy continued in the Christian era.
Aquinas considered the morality of prices, arguing the importance of "fair" prices where the merchant does not make excessive profits.
The ancients lived in societies where labor was largely made up of slaves and medieval Europe ruled a feudal system - where the peasants were protected by local lords in exchange for labor or military service.
So the moral arguments of these philosophers were somewhat academic.
Rise of the City States
In the 15th century, a great change occurred with the development of city-states in Europe and their enrichment through international trade.
A new, prosperous merchant class replaced the feudal landowners as important players in the economy and worked hand in hand with the banker dynasties that financed their trade and expeditions.
The new trading countries replaced small-scale feudal economies, and economic thinking began to focus on how best to control the exchange of goods and money from one country to another.
The dominant approach of the era, known as mercantilism, was about the balance of payments - the difference between what a country spends on imports and what it earns from exports.
Selling goods abroad was seen as good as it brought money to the country; Imports of goods were seen as damaging because the money flowed.
To avoid the trade deficit and to protect domestic producers from foreign competition, traders advocated taxation of imports. As trade increased, it went beyond the hands of individual traders and supporters.
Partnerships and companies were set up to oversee major trade operations, often with government support. These firms began to be divided into "shares" in order to be financed by many investors.
Interest in buying shares rapidly increased in the late 17th century, leading to the establishment of many joint stock companies and exchanges where stocks could be bought and sold.
A New Science Economy
The enormous increase in trade also led to renewed interest in the functioning of the economy and the beginning of the discipline of economics.
The so-called Age of Enlightenment, which emerged at the beginning of the 18th century and valued rationality above all else, adopted a scientific approach to "political economy".
Economists tried to measure economic activity and describe the functioning of the system, rather than just looking at moral consequences. A group of thinkers known in France as Physiocrats analyzed the flow of money around the economy and effectively produced the first macroeconomic (whole economy) model. They placed agriculture at the center of the economy, rather than trade or finance.
Meanwhile, political philosophers in Britain shifted the emphasis from commercial ideas of commerce to producers, consumers, and the value and utility of goods.
The framework for modern economic work was beginning to emerge.