The social science of economics (/ˌɛkəˈnɒmɪks, ˌiːkə-/)[1] examines the creation, allocation, and utilization of commodities and amenities.[/2][/3]
Economics is the study of how economies function and the activities and interactions of economic agents. The study of microeconomics examines what are thought to be the fundamental components of the economy, such as individual agents, markets, and the interactions that result from them.
A few examples of individual agents include homes, businesses, purchasers, and sellers. In macroeconomics, the economy is analyzed as a system consisting of production, consumption, saving, investment, and employment of labor, capital, and land resources; factors influencing this system include currency inflation, economic growth, and public policies that affect these components.
Other major divisions in economics are between normative economics, which promotes “what ought to,” and positive economics, which describes “what is.”
Definitions of economics over time
The study was formerly known as “political economy,” but from the late 19th century, “economics” has become the accepted word.21] The phrase ultimately comes from the Ancient Greek word oἰκονομία (oikonomia), which means “the way (nomos) to run a household (oikos)” or, more simply put, the skills of a οἰκονομιμός (oikonomikos), or “household or homestead manager.” It follows that derived phrases like “economy” sometimes imply “thrifty” or “frugal”.21]23]24]Reference [25] Thus, “political economy” could be seen as the means of running a polis or state.
Different definitions of economics exist today; some are a reflection of changing perspectives on the field or divergent opinions among economists.27][26] Political economy was characterized at the time by Scottish philosopher Adam Smith (1776) .
a section of a statesman’s or legislator’s science that has the dual goals of giving the populace abundant money or sustenance and supplying the state or commonwealth with funds for public services.(28)
Jean-Baptiste Say (1803) defined it as the science of the creation, distribution, and consumption of wealth, setting it apart from its applications in public policy.29] From a humorous perspective, Thomas Carlyle (1849) called classical economics “the dismal science,” a term that is typically associated with Malthus’s (1798) gloomy diagnosis.[/30] John Stuart Mill (1844) further narrowed the scope of the topic:
The science that tracks the principles governing social phenomena that result from humankind’s collective efforts to produce prosperity,
Economics is the study of people going about their daily lives. It asks about his source of income and his spending habits. As a result, it is both the study of money and, more significantly, a portion of the study of man.33]
What has been described as “[p]erhaps the most commonly accepted current definition of the subject” was produced by Lionel Robbins (1932) and has ramifications.In [27]
The study of human behavior as a link between aims and limited resources with multiple uses is known as economics.33]
According to Robbins, the term is analytical in that it “focuses[e] attention on a particular aspect of behavior, the form imposed by the influence of scarcity,” rather than classificatory in that it “pick[s] out certain kinds of behavior.”34]
The concept was criticized in some later comments for being unduly wide and neglecting to restrict its scope to market analysis. However, when the economic theory of maximizing behavior and rational-choice modeling extended the subject’s scope to previously unexplored regions starting in the 1960s, these remarks became less frequent.36]
Other objections exist as well, such as the claim that the macroeconomics of high unemployment are not taken into account by scarcity.(37)
An advocate of expanding economics into other fields, Gary Becker characterised his preferred method as “combin[ing] the] assumptions of maximizing behaviour, stable preferences, and market equilibrium, used relentlessly and unflinchingly.”37] According to one observer, the statement treats economics more like a method than a subject, but it does so quite specifically in terms of the “choice process.”
Regarding its subject matter, many economists—including Nobel laureates James M. Buchanan and Ronald Coase—reject Robbins’ method-based definition and continue to favor Say’s definitions.36] For instance, Ha-Joon Chang has maintained that the Robbins definition would make economics extremely unique since all other sciences identify themselves more in terms of the object or area of research than the methodology.
The biology department does not advocate using DNA analysis for every biological study. There are many diverse approaches taken by those who research living things: some may analyze DNA, others may study anatomy, and still others may create game-theoretic models of animal behavior.
History of economic thought
From antiquity through the physiocrats
The works of the Boeotian poet Hesiod raise issues about resource distribution, and Hesiod has been referred to as the “first economist” by a number of economic historians.(40) Instead of referring to some normative societal system of resource distribution, which is a much more recent phenomenon, the Greek word Oikos, from which the word economy derives, was used for issues regarding how to manage a household (which was understood to be the landowner, his family, and his slaves[41]).42]44][43]
Philologues attribute the origin of the word economy to Xenophon, the author of the Oeconomicus.45] Other well-known authors from antiquity through the Renaissance include Ibn Khaldun, Qin Shi Huang, Aristotle, Chanakya .
The future development of the subject was more directly impacted by two factions, who were thereafter dubbed “physiocrats” and “mercantilists”. Both organizations were linked to the emergence of contemporary capitalism and economic nationalism in Europe. From the 16th to the 18th centuries, mercantilism—an economic theory—grew in popularity through a prodigious pamphlet literature written by both statesmen and businessmen.
The concept of the economy as a circular flow of revenue and output was conceived by a group of French writers and intellectuals known as the physiocrats in the eighteenth century. Physiocrats held that the root of all prosperity was agriculture because only agricultural production produced a definite excess over cost.48]
They therefore opposed import taxes and other aspects of the mercantilist strategy that promoted trade and manufacturing at the expense of agriculture. Physiocrats favored a single tax on landowners’ income in place of administratively expensive tax collections. As a response to several mercantilist trade laws, the physiocrats promoted a laissez-faire economic philosophy that demanded less involvement from the government.49]
Adam Smith, a pioneer of economic theory, lived from 1723 to 1790.50] Smith criticized mercantilists severely but praised the physiocratic system “for all its
It stated that a country’s ability to accumulate gold and silver determined how wealthy it was. Without access to mines, countries could only obtain gold and silver through trade by exporting their goods and limiting imports of goods other than gold and silver. According to the philosophy, state regulations should put protective tariffs on goods created in other countries, and cheap raw materials should be imported to be employed in the fabrication of items that could be exported.
Classical political economy
The Wealth of Nations, written by Adam Smith, was first published in 1776. This has been called “the effective birth of economics as a separate discipline.”52] Unlike the physiocratic notion that only agriculture was productive, the book defined land, labor, and capital as the three forces of production and the primary contributors to a nation’s prosperity.
Smith talks about the possible advantages of division of labor specialization, such as higher labor productivity and profits from trade, whether within a town or across nations.53] The “theorem” stating “the division of labor is limited by the extent of the market” has been referred to be the “core of a theory of the functions of firm and industry” as well as a “fundamental principle of economic organization.”54]
Through an argument that features “one of the most famous passages in all of economics,”[56] Smith portrays every individual as attempting to use whatever capital they might command for their own benefit, not society’s, and for profit. Profit is, after all, a prerequisite for using capital in domestic industry and is positively correlated with the value of produce.In [58] In this instance:
In most cases, he doesn’t even realize how much he is advancing the public interest, let alone aim to do so. He only has his own security in mind when he favors home industry over foreign one, and he only has his own benefit in mind when he directs that industry so that its output may be of the highest value.
Marxian economics
Marxist (and later Marxian) economics is a branch of economics that originated with Karl Marx and descended from classical economics. Das Kapital, the first volume of Marx’s seminal work, was released in German in 1867. Marx concentrated on the labor theory of value and the theory of surplus value in it because he thought they explained how capital exploited labor.
In [66] According to the labor theory of value, the labor required to produce a good or service determines its value, and the notion of surplus value explains why workers only receive a portion of the value they create.In [67][Maybe – debate]
Karl Kautsky’s (1854–1938) The Economic Doctrines of Karl Marx and The Class Struggle (Erfurt Program) advanced Marxian economics.
Neoclassical economics
In Jean-Baptiste Say’s Treatise on Political Economy or, The creation, Distribution, and Consumption of Wealth (1803), the field of economics was defined and extensively debated as the study of wealth creation, distribution, and consumption at the time of its inception as a social science. These three factors were only taken into account in connection with the growth or decrease of wealth; their methods of implementation were not taken into account.[b]
Say’s definition has persisted in part to the present day; it has been altered to include non-material items by replacing “goods and services” with the phrase “wealth.” A century and thirty years later, Lionel Robbins saw that this concept was out of date[c] since a large number of economists were influencing theory and philosophy in other spheres of human endeavor.
Neoclassical economics in microeconomics holds that costs and incentives have a ubiquitous influence on how decisions are made. The consumer theory of individual demand, which separates how prices (as costs) and income affect quantity wanted, is a clear illustration of this.72] Keynesian macroeconomics, an early and influential neoclassical synthesis, is one example of how it manifests in macroeconomics.(74)72]
Sometimes, both supporters and detractors of neoclassical economics refer to it as orthodox economics. Neoclassical economics is the foundation of modern mainstream economics, but with many improvements that either extend or enhance previous research, such as econometrics, game theory, the study of imperfect competition and market failure, and the use of the neoclassical model of economic growth to analyze long-term factors influencing national income.
Keynesian economics
John Maynard Keynes is the source of Keynesian economics. His 1936 book The General Theory of Employment, Interest, and Money introduced modern macroeconomics as a separate discipline.(76) The short-term factors that determine national income while prices are largely fixed were the main emphasis of the book.
Keynes made an effort to provide a comprehensive theoretical explanation for why low “effective demand” and high labor market unemployment can prevent price flexibility and monetary policy from working. The book’s influence on economic analysis has led to the term “revolutionary” being attributed to it.(77)
Two approaches have replaced Keynesian economics. The focus of post-Keynesian economics is likewise on adjustment processes and macroeconomic rigidities. It is typically connected to Joan Robinson’s work at the University of Cambridge.(78)