The definition of economics

Economics is a social science that examines how people use limited resources to meet needs are not limited. It involves identifying options or courses of action in a world with limited resources. It involves the analysis of choices or courses of action in a world of limited resources. All human activities have opportunity costs; that is, we must give up something to get something. Economists study a range of issues such as production costs, inflation, and unemployment. What all these issues have in common is that they involve the allocation of resources. Health care, for example, is said to be an issue in modern societies. This is because medical care is a scarce resource and it is worth a lot of money to a lot of people. This means we must decide how much of our resources to devote to health care and how much the money that could be spent on health care is worth to people who won't give up working to get better health care. Economics can be said to study how society allocates its scarce resources to meet its ends.

The above definition of economics involves several key issues.

First, it states that economics is a social science rather than a natural science. This is because economics is concerned with how people choose to use their resources. Since society consists of people, this involves social interaction. People are also assumed to act in an attempt to satisfy their wants.

A recurring theme in economics is that of choice. This is because it is assumed that people have unlimited wants but only limited resources. They therefore have to choose between alternatives. This involves an element of cost and benefit. When people make decisions, it is generally thought that they do so to gain some benefit. Any gain is said to be a benefit, but this does not mean that is the only positive outcome. For example, the benefit of cutting down a public forest may be a cheap source of timber. The choices involved in this decision all have a benefit, but as one option is chosen only the benefits from that option are gained.

Costs, on the other hand, are the value of the next best alternative forgone. Opportunity costs are the sum of benefits of the next best alternative forgone in making any decision. This is a complex idea, so it is best explained with an example. Suppose person x decides to start up a business and calculates that after a year he will have invested £5000 in the business. If person x has no real monetary loss, his costs are the value of the next best use of that £5000, such as a high-interest yearly savings account or a similar venture.

Prehistoric economies

Although prehistoric economies varied greatly over time and region, they generally revolved around activities such as hunting, gathering, fishing, barter and trade, the emergence of the currency, and later the agricultural revolution. Here are some important facts about prehistoric trade:

Hunter-Gatherer Societies

Hunter-gatherer: Early humans were hunter-gatherers who relied on wild animals and gathered wild plants for food. This lifestyle requires a nomadic or semi-nomadic existence as they follow seasonal fauna and flora.

Early Trade and Barter

There were also many instances that the barter system was carried out with a long-term vision in mind. Probably the most commonly known trade or barter was the one carried out between the tribesmen and the settlers. In such a scenario, the tribesmen would trade land with settlers in the present-day continent of America for food and trinkets. Though the Native Americans do regret the trinkets today, this was a very good method of securing resources for the Second World party, providing a more permanent settlement before moving on to the location of the trade.

Early trade and barter was a method of exchange that helped various groups of people to make ends meet at the end of the day, where they would trade their goods with one another. This was probably the best way that trade and barter could have been described when it comes to the early stages of what we all today call the Haves and the Have Nots. Where trade was a source to meet the demands of the people with the resources that they had, building a more economic method to provide for themselves. Now the barter system has been described as having huge and continuous repercussions on the development of economic activities and its impact would not be too much different compared to the money systems today.

Before the advent of money, economic transactions occurred through barter. In its simplest form, barter is the exchange of a good or service for another. Barter has been a significant part of international trade for many centuries, but it has presented economists with substantial problems in developing realistic theories to explain the functioning of the economic system in the absence of a medium of exchange. Pre-monetary societies largely made use of reciprocal gift-giving to create and maintain social order. It has been the subject of substantial debate as to whether a separate economic rationale for gift-giving exists, or whether political and social structures determine the nature of the economy. In ideal gift economies, the market norms of reciprocal distribution, as well as the creation and distribution of surplus, are established through the division of labor.

Agricultural Revolution

Around 10,000 years ago, The agricultural revolution began with the domestication of plants and animals. The first evidence of plant cultivation is from the Jarmo site in Iraq and the first evidence of animal domestication is from several sites in the Middle East. It is uncertain when exactly these processes began, but it is theorized that they were started by the people at these sites living in an area with a rich variety of plant and animal life, and noticing that certain plants and animals could serve as food which would be more easily obtained if they were grown or raised, as opposed to hunting and gathering. From that, they would start a process of trial-and-error selection, searching for the plants and animals that would be able to survive in the environments provided for them, and gradually transforming these plants and animals into forms more suitable for human use. As these people found success with this method, the idea of having a readily available and controlled food supply caught on, and more and more people began to switch from the old method of acquiring food to growing their food.

The agricultural revolution signaled a profound change in the economy and set the stage for human civilization. Before this revolution, people lived a nomadic hunter-gatherer lifestyle. This involved them wandering from place to place, seldom settling down, and if they did settle down, it was only for a short time. This was because humans were still dependent on the environment and the animals within it. These humans were at the mercy of the earth. They were dependent on what the earth naturally provided them with, not being able to produce for themselves. Because of this, the population remained low at this time, and humans did not make alterations to the environment, the ecosystem maintained itself at an even level.

Emergence of Currency

Hard to top value in its early appearances, cowry shells were used as currency as far back as 1200 BC, and are known to have been used in China as early as 2000 BC. They were highly successful in Africa, India, and the Pacific islands as a method of exchange for hundreds of years because most know the familiar forms it takes. Cowry was appealing to the eye and was convenient in size, durability, and was divisible. Considered in some places to be money from the gods, it was brought into existence by divine order. Cocoa beans were of a similar era to the cowry and were likely first used in the Olmec civilization around the same time, and over time its use spread to the Aztecs who would use it when they first encountered the Spanish. The word "cocoa" is derived from the Olmec word "kawkaw". This too was a successful form of money with cocoa seeds being counted and placed in bags of 800-1000. Other food-related currencies were rice in ancient China, grain such as barley and wheat in ancient Mesopotamia, and salt in various places. Unfortunately, these were all perishable and were eventually abandoned for more valuable forms of metal.

Methods of exchange continue to develop and evolve, and there is no shortage of them in human history. But as man's means of communication became more sophisticated, so did his trading systems. It was a slow lingering process spread over centuries, millions of which would have been spent on finds better suited to his purpose. He would seek to find a more divisible, durable, portable, and intrinsically valuable means of exchanging goods. Not surprisingly, this too was a reflection of man's evolving way of life. The shift was made from mostly pastoral and agricultural-based economies to more complex urban societies around the close of the second millennium BC. The reason for currency's emergence was it served as a more efficient form of wealth transference, which in turn greatly facilitated trade.

Ancient Economies 1000 BC to 500 AD

The ancient economy of this period was influenced by Mesopotamian civilization, Egyptian civilization, and the Greco-Roman Empire.

Mesopotamian Economy

Mesopotamia was a stable and economically diverse place in early human history. The Mesopotamian economy is largely understood, although its details have not yet been resolved. Archaeologists confirm that the Mesopotamian civilization was based on agriculture. Barley was an important crop because it was both food and an ingredient in beer popular among the Mesopotamians. Surplus crops were often stored in warehouses or granaries owned by various departments and household leaders. Each city produces its products and rarely trades with other cities because each city has sufficient agriculture.
Trade and commerce were important aspects of business in ancient Mesopotamia. The geography of Mesopotamia, with its few natural resources, suggests the need to find aid that was transferred from city to city, whether in Mesopotamia in the Near East or rare regions such as Egypt or India. The main sources of Mesopotamian finds are stone, wood, and precious metals because these are rare in Mesopotamian lands. It is assumed that the products produced in Mesopotamia were exported to other regions to pay for these resources. The Mesopotamians were also very strong in local and distant trade; this is evidenced by many maritime accounts (the most famous being the Epic of Gilgamesh). All major cities.

Egyptian civilization

Egypt is a country rich in history and is known to many as the birthplace of civilization. Though the peoples of ancient Egypt relied on the Nile's fertile land and water resources, they were essentially self-sufficient. Only a few of them interacted with foreign countries, and these interactions had a relatively small impact on the course of ancient Egyptian history. Egypt's economy was a difficult one, even with the agricultural proficiency of the Egyptians. Economic surplus was low because the total productivity of the nation was not much more than what was needed to support the population. This was due to a combination of low technology, a conservative attitude towards the same, and the constraining need to preserve the social order. Furthermore, the Egyptian environment was unusually unpredictable because of the Nile's regular but occasionally devastating floods. These factors made it difficult for Egypt to engage in long-term economic planning, and they heavily influenced the Egyptian attitude towards the material world and the economic choices that the civilization was to make.

Greek civilization

Greek civilization can be categorized into many different topics such as Alexander the Great or the Parthenon. However, one of the societies which set the framework for Western society was that of the Ancient Greeks. They were an ancient society that first began to consider themselves as 'civilized' in comparison to what had existed previously, and so it is the perfect civilization to begin looking at how and why the economy is so crucial to a developing society. To appreciate the Greek economy and its various aspects, we should first have a basic understanding of Greek civilization and how the society was organized. This can be broken down into smaller subdivisions, and indeed this is how the Greeks themselves viewed it: In geographical terms, the Greeks divided the many lands and islands upon which they lived into three separate entities; Ancient Greece, Asia Minor, and the Aegean. In terms of time, the Greeks distinguished many different 'ages' i.e. the Golden Age, the Bronze Age, etc. Step one is to study each of these smaller subsets of ancient society, and each of the different lands focusing on specific factors. Then we must analyze the entire civilization integrating all the different studies to form a complete overview of how Greek society was organized. This will be a good base upon which to build our understanding of the Greek economy and its importance to society.

Roman empire

The Roman Empire was the post-republican period of the ancient Roman civilization that was ruled by an emperor and owned vast territories around the Mediterranean in Europe, Africa, and Asia. The 500-year-old empire was devastated by civil war and civil strife, during which Julius Caesar was elected as the first permanent ruler. B.C. He was killed in 44. Wars and massacres continued, culminating in the establishment of the imperial government in 27 BC. The Roman Empire collapsed over 4-5 centuries due to various reasons, most of which are unknown even today. However, this conflict lasted until the Theodosian Schism of 395 AD and never recovered. The changes and eventual decline of the Western Roman Empire in 476 AD and the continuation of the Eastern Roman Empire have been the subject of many studies and discussions.

The Roman Empire is a unique case in history, large and successful enough to be compared with the USA and Russia in modern times. In terms of size and population, only the People's Republic of China was comparable with the Roman Empire. The Roman Empire's impact on modern Western civilization is quite profound. Much of Roman culture affects the culture of today, Latin has morphed into the Romance languages, Roman government has had an in-depth impact on modern government, the modern Western calendar is a modification of the Julian calendar, and Christianity, the religion of Europe for almost two millennia, rose from the religion of an oppressed minority to the religion of the empire itself. Despite this great progression in the study of ancient economies in the past half-century, it has only been in the last decade that the economies of the Roman Empire have begun to receive their due attention. The Roman economy was not ignored by economists, it simply wasn't looked at the same way that modern economies and even the economies of other pre-industrial societies were. The Roman economy was seen as essentially static, with no significant long-term economic growth and an almost exclusive reliance on simple technology. This was largely seen as a microcosm of the rest of the pre-industrial world.

Medieval and Renaissance Economies

Trade and commerce in the Middle Ages were vital to the daily lives of people. The long-term view of the economy shows that medieval people were self-sufficient and only a small surplus was sold outside the local village. The local exchange was a vital part of the economy. A mass of documents survives from the early Middle Ages, which recorded these transactions in detail. A few studies have been made of these texts, in an attempt to link them with the field of economics. The majority of the documents merely outline the exchange of one good for another, so it is difficult to ascertain any real transaction or price, so many historical economists have bypassed them as irrelevant. But others believe that by looking at the simple teaching of the predecessors and reading between the lines of the charters, the documents piece together the affairs and fates of many trading communities. It is believed that only an uncommon disaster, such as a military operation, would disturb the routine of local exchange during the Middle Ages.

Economic systems in the Middle Ages were diverse, and many scholars have pejoratively applied the term "manorial" to what they believed was the only form of medieval economy. In the last generation, the manorial construct has been challenged, and its rather static vision of the economy is giving way to a more dynamic vision with a greater role for markets. The grand narrative for much of the 20th century was that European economies experienced a crippling "transition" from feudalism to capitalism. More recent studies have averted the concept of "feudalism" (and the central manorial mode) as useful interpretative devices.

Trade and Commerce

The commercial revolution of the sixteenth and eighteenth centuries has been seen as a continuation of the growth of commerce dating from the High Middle Ages in Western Europe. The new commerce is said to have been founded on three moments of development. The 'first commercial revolution' of the eleventh to thirteenth centuries was associated with the growth of towns. This happened in the first place because demographic expansion in Western Europe gave strength to urban life. Second, this growth of towns was concentrated in certain areas creating phenomena of townlands where much exchange and agrarian forwardness was to occur. Finally, by the end of the high Middle Ages upturns had occurred in the price of goods in land-lease and labour service contracts.

The debate was born of the assumption by early analysts that medieval Europe was a uniformly agrarian society in which the great mass of economic resources and the predominant forms of economic activity were land and agriculture. This general belief then kindled curiosity regarding the nature of the European economy which existed when it was seen that by 1750 commercial and industrial activity had become very vigorous. Early research on the 'rise of commerce' thus consisted of a search for signs of growth or changes in the scale and scope of pre-industrial commerce, industry, and finance.

By far the best-developed area in which historical economics offers insight beyond the basic contours found in most history books is in the area of trade, as sharp disagreements continue to exist over the systems and consequences thereof. The classic debate in European economic history is often characterized as 'commercialization'. Explicitly or implicitly, the supposed 'rise' of commerce and 'commercial society' to a status above and beyond economic activities of previous eras has held center stage.

Agriculture and Feudalism

Agriculture was the most significant economic activity in the Middle Ages, medieval cultivation method being swept away by the advent of the open field system. This was an arrangement where individual families cultivated their 30-acre holdings, using a three-field rotation system. This was a huge improvement in cultivation techniques and allowed for the gathering of greater harvests, thus gradually increasing the general well-being of the people. Each manor house had its system of farming, which would be built around a weak form of cooperation, but the welfare of the landlord was always placed before the welfare of the peasantry. The cultivation and selling of cash crops was the principal method of making a profit for landlords, although tenant farmers were seldom allowed to take a cash wage for their labor. Many would work on the lords' land to gain favor, often holding mass meetings and strikes in times of economic adversity, in an attempt to increase their bargaining power. Revenue gained from the land would be plowed back into productive investment, by employing masons and carpenters and purchasing plows. The Church the bishop sat above peasants in the class structure and below the lesser and greater nobles. The Church used the land to gain wealth and to do this, the clergy often passed on the right to the land to their descendants or lesser clergy. Agriculture was funded using surplus revenue, or aid from the landlords, but many peasant farmers began to sink further into debt, due to lower wages and increased taxes. In fiscal terms, this was a period of inflation, and by the middle of the 14th century, Europe was in severe economic depression, causing prices to tumble: the guilder lost half its value by the sixteenth century.

Merchant Guilds

The study of merchant guilds cannot be complete without understanding the definitions and scope of the subject. In this case, the problem begins with inaccurate terminology. The word guild itself was used across Europe to describe a plethora of different organizations. In thirteenth and fourteenth-century England, 'craft guild' and 'merchant guild' were easily distinguishable terms. However, in other medieval societies, the terminology was used more flexibly. In France and Germany, a 'métier' guild could encompass master craftsmen and merchants. The confraternities in Venice began as a religious fraternity for the Scuola of San Marco and developed into a confraternity of merchants with the same name. By studying merchant guilds in medieval Europe, we are using a catch-all term for a wide variety of organizations and institutions. This includes fraternities, religious confraternities, 'free-standing' companies and associations, charities, political pressure groups, local government institutions, and ad-hoc combinations for a single purpose. The specific functions and identities of these groups were not homogeneous; they often formed at a specific time and place to fulfill a specific purpose.

Merchant guilds have been a subject of interest since the birth of political economy with the works of Adam Smith and the Physiocrats. Modern economic historians often imply that medieval and early modern merchants formed an economic elite and that their enclaves such as the merchant guild acted as an engine of economic growth. There is a danger in taking modern economic structures and applying them to pre-capitalist society. Many merchant guilds had ceased to exist by the time the Physiocrats were writing, and their assumptions of a 'natural' economic order and stages of development do not allow for an accurate or realistic assessment of the role of medieval merchant guilds.

Mercantilism

The ideology surrounding mercantilism extended from about 1500-1800 AD, making it the predominant economic theory in Western Europe during this time. While there were many competing doctrines, it became widely regarded as the most effective means of increasing a country's wealth and power. At the period's formative stage, the theory was predominantly spread by authors of tracts who were seeking a more advantageous trade policy for their grain-producing or manufacturing clients. While many propounding the theory or actual participants in its practice were from the middle or lower classes, the theory as it came to be implemented was almost always to the benefit of the ruling or otherwise elite classes. Most tellingly, in any given nation the merchants or 'economic managers' were often the most ardent supporters of most variants of mercantilism with the notable exception of free trade policies.

The name "mercantilism" comes from the Latin word "mercari" meaning "to run a market" or "to trade". This was later clarified by English philosopher Adam Smith who determined that "merchants" were anyone involved in a trading or money-making activity, thereby making the definition of mercantilism "the management of trade for economic growth". This encompasses an overwhelming majority of actions taken by the government from this era and from that point on.

Mercantilism is a policy that is designed to ensure the prosperity of a nation through the regulation of trade and industry. The theory of mercantilism reduces the wages of the workers and the cost to producers, in a concept that idea that one person (or government) gains only when the other party loses. It implies that the rich are only rich because the poor are poor. This concept is widely accepted yet grossly criticized. Mercantilism is also a theory that the government should have complete control of the economy of a nation, including both industry and trade. What takes place is the government will attempt to sell a product at a price that is either greater or less than its actual value, and with complete control, this becomes the accepted value of the product. Although this can cause a great strain on the citizens of the nation, this theory is also used today and is known as a mixed economy.

Modern Economic Thought

One of the overall themes of "Modern Economic Thought" is to analyze the scope and motivation of economists during various phases in history, to provide a better understanding of our modern economic world. This analysis is done with a specific analytic framework that encapsulates the motivations, the key problems, and the result of the work, in various phases of economic thought. To facilitate this analysis, the book summarizes the economist's views into core micro and macroeconomic theory that is still useful today. While history and the core of the idea are important, the motivation of an economist is usually to provide a solution to a problem or to change the world in some way. Thus, the book places a key emphasis on tracking changes to economic theory and practice due to the work of an economist. This will track the evolution of economic thought through various spheres of practice and theory, each with its methodology into the current set of economic theories and the problems they pose. The book's beginning chapter lays the foundation for three periods of important change in the economic sphere. These are the mercantilist period where modern-day capitalism was born, the classical period where a coherent body of economic theory was first developed, and the beginning of economics as a mathematical social science.

Classical Economics

The classical economic theory would not be what it is today if it was not for a Scottish economist named Adam Smith, frequently referred to as the father of economics. Smith was amongst the first to understand and promote the organic approach to economic growth through changes in capital stock and the utilization of specialization in the labor market. This led to his introduction of the production possibility curve (later seeing production function) and the theory of absolute advantage, both of which are still valid in economic theory today. Smith's biggest influence, however, dealt with his views that the free market was best able to serve the public interest, and this led to his attacks on mercantilism (a government intervening in the economy to increase exports and decrease imports usually through protectionism) and his promotion of laissez-faire, allowing the economy to adjust through market mechanisms. It was Smith's belief in the natural competitive forces in the market toward self-employment equilibrium that led to the development of Say's Law, built upon by John Baptiste Say. Smith's last acclaimed contribution was that of the labor theory of value, which was later replaced by the marginal utility model in neoclassical economics.

Adam Smith (1723 - 1790)

Before reading Modern Economic Thought, I had almost no knowledge of economics. Throughout the semester, I have realized and learned much that I can continue to build on in this lifelong learning experience in many different avenues. This was the first economic theory to come out and laid a firm understanding for the future. The classical theory, because of its static properties, created most of its hypotheses from the study of the short run. By doing this, it simplified the economy into three sectors: the product market, the money market, and the labor market, all of which were interrelated. The major thesis the classical theory embodied was the probability of the economy to self-adjust back to a full employment equilibrium. This was based on the belief that the economy had a natural or full employment level of real output which was contingent on the full employment of labor and capital. Any other level of output would result in a surplus or a shortage of money which would facilitate the change in price levels to get back to full employment output.

Marxian Economics

The nature of the transition to communism is a matter of great controversy among Marxists. It can be inferred from the Communist Manifesto and various other writings that communism is to arise immediately following the collapse of capitalism. However, the hierarchical theory of history and stages of economic growth found in the materialist conception of history lead one to believe that communism is to be reached after a long period of socialism. Many modern socialists now advocate that socialism is a viable alternative to communism and it need not necessarily be a transition phase.

The first volume of Capital is the most significant portion of Marx's writings on economics. It contains his critical analysis of capitalism, the nature of value and money, the concept of surplus value and its implications, and the determinants of the rate of surplus value. The final two volumes of Capital are much more sketchy and incomplete. It is here where the transformation of capitalism to communism is suggested to take place. Although many Marxists regard the volume of Capital as the "Bible" of the revolutionary socialist, Marx's economic theory of capitalism has now been surpassed by modern economic theory except the theory of surplus value and distribution.

Marxian economics is predominantly a fusion of Hegel's dialectics, German, and French communism. The foundation of Marxian economics is the class struggle, which was the sole factor in historical development. The ultimate victory of the proletariat class was indispensable for the establishment of the communist utopia. The economic theory of Marx consists of three detailed analyses of the capitalist system, a description of the communist society, and a comparison of the two.

John Maynard Keynes and Keynesian Economics

Keynesian economics is a theory about aggregate expenditures in the economy and its effect on output and inflation. The essence of Keynesian economics is the theory of aggregate expenditure in the economy and its impact on output and inflation. The essence of Keynesian economics is the concept of aggregate demand, which states that all expenditures in the economy have a significant impact on the level of the economy and that demand will fall short, causing long-term unemployment. Keynesian economics was developed in the 1930s by British economist John Maynard Keynes to understand the Great Depression. This is one of the most important points of classical macroeconomic theory.
Monetary macroeconomics as a discipline can be divided into two paths: classical economics and Keynesian economics. There are theoretical differences, and the impact of Keynesian economics on the 20th century can also be seen as a difference.

Neoclassical Economics and Contemporary Schools of Thought

The neoclassical approach still dominates in economics. It emerged in the 1870s as a result of the marginal revolution caused by the historical and organizational approach and the early work of classical political economists. This change reveals a major weakness in the tradition developed by the neoclassicists. Neoclassical economics has three principles: rational behavior, economic equilibrium, and sustainable interests, which can be discussed in terms of how these translate into methods and theories. Neoclassical economics attempts to provide methods and analytical tools to analyze economic problems. These areas of the agent and their interactions within the business are different. The general approach is the marginal analysis method; cost theory and the general equation provide the simplest form of analysis. These methods all assume that optimal behavior involves optimal parameters. While static and dynamic individual and job balances provide analytical purposes, stability, and comparative static values ​​are often used to evaluate the impact of policy changes. All these methods can be reduced to the concept of "boxology" - an analytical tool that makes it possible to isolate specific business conditions and monitor their effects.

Contemporary Schools of thought

It is difficult to identify specific schools of thought in today's orthodox business world because there is a mixture of ideas between schools and schools of thought, and it is often difficult to find unstable economics in neoclassical theory. The most important difference is that orthodox economics has been influenced by neoclassical economics, and the difference between different branches of orthodox economics is less than the difference between orthodox economics and heterodox economics. This illustrates one of the fundamental differences between neoclassical economics and its predecessor, which was full of debates between different schools of thought.
Generally speaking, modern schools of thought can be divided into two broad groups: traditional or orthodox (mainstream) and heterodox economics (literally "other than" orthodox), and their individuals can be divided into different gene types.

So, in summary, economics, like humanity itself, has evolved. From the basic survival needs of prehistoric societies, through the barter systems of ancient civilizations, the invention of money, the manorial and mercantile systems of the Middle Ages and Renaissance, the Industrial Revolution, and the development of modern economic theories, to the digital economies of today. These historical milestones have shaped the economic landscape, showing us not only where we've come from, but perhaps giving a hint as to where we're heading. The journey through this era highlights the importance of business in creating life and driving human progress.

Author: Donald Masimbi