What is Economics?

Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek οἰκονομία (oikonomia, "management of a household, administration") from οἶκος (oikos, "house") + νόμος (nomos, "custom" or "law"), hence "rules of the house (hold)". Current economic models emerged from the broader field of political economy in the late 19th century. A primary stimulus for the development of modern economics was the desire to use an empirical approach more akin to the physical sciences.

Economics aims to explain how economies work and how economic agents interact. Economic analysis is applied throughout society, in business, finance and government, but also in crime, education, the family, health, law, politics, religion, social institutions, war, and science. The expanding domain of economics in the social sciences has been described as economic imperialism.

Common distinctions are drawn between various dimensions of economics. The primary textbook distinction is between microeconomics, which examines the behavior of basic elements in the economy, including individual markets and agents (such as consumers and firms, buyers and sellers), and macroeconomics, which addresses issues affecting an entire economy, including unemployment, inflation, economic growth, and monetary and fiscal policy. Other distinctions include: between positive economics (describing "what is") and normative economics (advocating "what ought to be"); between economic theory and applied economics; between mainstream economics (more "orthodox" dealing with the "rationality-individualism-equilibrium nexus") and heterodox economics (more "radical" dealing with the "institutions-history-social structure nexus"); and between rational and behavioral economics.

History of Economics

The first writings on the subject of economics occurred in early Greek times as Plato, in The Republic, and Aristotle wrote on the topic. Later such Romans as Cicero and Virgil also wrote about economics.

In medieval times the system of feudalism dominated. With feudalism, there was a strict class system consisting of nobles, clergy and the peasants. In the system, the king owned almost all the land and under him were a series of nobles that had land holdings of various sizes. On these landholdings were series of manors. These were akin to large farming tracts in which the peasants or serfs worked the land in exchange for protection by the nobles.

Later the system of mercantilism predominated. It was an economic system of the major trading nations during the 16th, 17th, and 18th cent., based on the idea that national wealth and power were best served by increasing exports and collecting precious metals in return. Manufacturing and commerce became more important in this system.

In the mid eighteenth century, the Industrial Revolution ushered in an era in which machines rather than tools were used in the factory system. More workers were employed in factories in urban areas rather than on farms. The Industrial Revolution was fuelled by great gains in technology and invention. This also made farms more efficient, although fewer people were working the farms. During this time the idea of "laissez faire" became popular. This means that economies work best without lots of rules and regulations from the government. This philosophy of economics is a strong factor in capitalism, which favours private ownership.

In the nineteenth century, there was reaction to the "laissez-faire" thinking of the eighteenth century due to the writings of Thomas Malthus. He felt that population would always advance faster than the science and technology needed to support such population growth. David Ricardo later stated that wages tend to settle at a poor or subsistence level for most workers. John Stuart Mill provided the backdrop for socialism with his theories that supported farm cooperatives and lab or unions, less competition. These theories were brought to a high point by Karl Marx who attacked the capitalistic, "laissez-faire" theories of competition and instead favoured socialisms, marked more government control and state rather than private ownership of property.

Another important idea at this time was the change in how items are valued. While formerly and item's value stayed the same according to what the item was, now worth of an item is determined by how many people want the item and how great the supply of the item was. This was the beginning of the laws of supply and demand.

In the first half of the twentieth century, John Maynard Keynes wrote about business cycles - when the economy is doing well and when it is in a slump. His theories led to governments seeking to put more controls on the economy to prevent wide swings.

After World War II, emphasis was placed on the analysis of economic growth and development using more sophisticated technological tools.

In recent years, economic theory has been broadly separated into two major fields: macroeconomics, which studies entire economic systems; and microeconomics, which observes the workings of the market on an individual or group within an economic system. In the later twentieth century such ideas as supply side economics which states that a healthy economy is very necessary for the health of the nation and Milton Friedman's ideas that the money supply is the most important influence on the economy.

In the twenty-first century, the rapid changes and growth in technology have spawned the term "Information Age" in which knowledge and information have become important commodities.