The study of the allocation of scarce resources among competing ends, the creation and distribution of wealth, and national income. The first major economist was Adam Smith, and the economic theory of the classical school (equilibrium)dominated thinking until the 1930s. The main change in thinking at that time was the result of work by J M Keynes, whose economic theories attempted to solve the problems of depression and economic stagnation.
After 1945, the main aim of economic policy was to maintain high employment levels. Inflationary pressures were a test of Keynesian economics: monetarist theories were popular in the 1970s as an attempt to reduce inflation, but these are now believed to have contributed to the high levels of unemployment seen in the early 1980s.
Two main aspects are often recognized. Microeconomics is the study of the economic problems of firms and individuals, and the way individual elements in an economy behave (such as specific products, commodities, or consumers). Macroeconomics is the study of the country as a whole, including such matters as trade, monetary policy, prices, national income, output, exchange rates, growth, and forecasting (econometrics).
Particular concerns are how to manage an economy to achieve high growth, low inflation, and high employment; and, for individual firms, to predict those economic factors which will affect them in the future, thus enabling them to improve their own planning.
Economics is a social science that studies the production, distribution and consumption of goods and services. Simply put, economics is the science of man's resources, or wealth. Economists study how resources are produced and how they move around the world and within societies and markets, and how all of the different elements involved in resource allocation, such as commerce, finance, human labor, population, politics, the preservation and ownership of natural resources, etc., -- even weather -- interact to distribute wealth.
|The word "economics" comes from putting two Greek words together -- "oikos", meaning household or family estate, and "nomos", meaning rules or laws. The resulting word means, more or less, the wise management of one's estate, or resources.|
Although economics is regarded as a social science because it deals with human interactions, economists, like physical scientists, rely on mathematical models, formulas and graphs to study and explain how wealth works and flows around the world. But, like people and politics, human economics is imprecise. Thus, economics is not considered to be a "pure" science in the sense that physical sciences are. Yet understanding economics is important to all of us because economics is part of almost everything in our daily lives -- it determines where we live, the kind of house we live in, the food we eat, the allowance we may receive from a parent, our education and recreation choices, and how and why we interact with most other people.
Economics also might be described as the "math" of politics which result largely from the distribution and movement of wealth and its power among people. Thus, economics is closely related to, and intertwined with, the social science of politics. Some say that politics is economics, or the result of economics. For instance, one of the things that some economists study is how to find better ways to distribute wealth among people so they remain happy and don't start wars. Economists still don't know exactly how societies can distribute wealth fairly while at the same time getting people to produce more resources -- most people don't want to work unless they are rewarded for their work and allowed individually to grow richer by it, but when some people are richer, then others necessarily must be poorer. This problem of resource allocation is one of the major questions with which not only 20th-Century economists, but 20th-Century politicians, have struggled.
Communism is one 20th-Century experiment in government that was devised to try to solve this economic problem. The economic aim of a communist society is to try to divide resources equally among its citizens, so that the society as a whole (the state) owns everything. In communist countries everyone has about the same resources, but no one is rewarded individually for hard work, which tends to discourage people from creating more resources for the society. Modern western democracies, on the other hand, employ " market economies" to try to encourage people to create more resources through competition. In these economies, people are encouraged to produce more resources because they are allowed to keep most of the rewards of their work themselves (usually minus a tax) contribution to the society. But allowing some people to own more resources -- to be richer than others -- means that some people in these societies must be poorer. Neither of these two systems, nor any other economic system on our planet now, address the problems of resource allocation and production perfectly. Resource allocation and the struggle between the "haves" and "have-nots" has driven government -- and why we need government -- throughout history.
Economics is a relatively new science started by the Englishman Adam Smith with the publication in 1776 of his book, An Inquiry Into the Nature and Causes of the Wealth of Nations (now known as just Wealth of Nations). Smith, like other early economists, was more of a philosopher than a technician. Now considered the father of modern economics, he wanted to understand how economic development, such as the Industrial Revolution of his own age, affected poverty and prosperity. He wanted to know what causes people to produce more goods and services so that nations become wealthier, and how that affects poverty within a nation. What he was trying to understand is what is now termed " economic growth." Smith introduced the basic economic concept that land, labor and capital are the three factors of production and the major contributors to a nation's wealth.
Adam Smith's study of economics was concerned primarily with how market economies, as a whole, work -- how all the markets within an economy together affect it and societies and governments and vice versa. Today the focus of his study would be called " macroeconomics." The other main division of the modern field of economics is " microeconomics," which focuses more on the individual parts that make up a market economy -- the sub-markets for individual goods and services and the sub-elements of those markets, such as the consumers for individual products and the individual companies that produce, manage or transport those products; and how these elements affect and are affected by the market, how they are financed, etc.
All societies have economic systems and although economic systems have existed as long as mankind, it was not until the 1600s, when international trade grew rapidly with Europe's exploration of the world, that nations began to develop economic policies, per se, for trading with each other. Mercantilismis one example of these early policies. But it was not until Adam Smith that people began to study economic policies and how they work in scientific fashion. The study of economics really took off in the second half of the 1800s, when important theories about economics were contributed by Thomas Robert Malthus, Karl Marx, and John Stuart Mill, among others. Important economists of the 20th Century include John Maynard Keynes, Milton Friedman, Friedrich August von Hayek and Sir John Richard Hicks.
On December 6, 2000 you would receive the following for one US Dollar ($1.00):
Today this scientific field has grown to include many theories, economists and sub-disciplines. It includes study of matters ranging from, among others, how individuals can manage their family resources better (home economics); to how a company can use its resources better in order to make more profit (business economics); to how the entry of women into the workforce affects our individual families and society's resources and lifestyles (social economics); to how to keep world trade flowing by managing the debts of poorer countries (international economics). Governments, businesses and other entities around the world now employ economists to help them make decisions. In the United States, for instance, one of the most important government institutions is the Federal Reserve Board, headed by economists who study the world and U.S. economies on a daily basis in order to manage the national banking system and interest rates to try to keep the U.S. economy healthy. International organizations such as the International Monetary Fund and the World Bank were set up to help keep the world economy stable by working to keep the exchange rates for national currencies stable and loaning money and technical advice to developing countries so they can improve their markets and internal economies. The world's economies are so interrelated and interdependent that the workings of each one of them affect the whole -- what happens in an economy far from your own can affect how well you live. The understanding of economics now is considered so important to helping us run our world better -- and to maintaining peace -- that a special Nobel Prize is awarded each year in Economic Sciences.