Economy

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An economy (from Greek οίκος – "household" and νέμoμαι – "manage") is an area of the production, distribution and trade, as well as consumption of goods and services by different agents. Understood in its broadest sense, 'The economy is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the production, use, and management of resources'. [1] A given economy is the result of a set of processes that involves its culture, values, education, technological evolution, history, social organization, political structure and legal systems, as well as its geography, natural resource endowment, and ecology, as main factors. These factors give context, content, and set the conditions and parameters in which an economy functions. In other words, the economic domain is a social domain of human practices and transactions. It does not stand alone.

Contents

Economic agents can be individuals, businesses, organizations, or governments. Economic transactions occur when two groups or parties agree to the value or price of the transacted good or service, commonly expressed in a certain currency. However, monetary transactions only account for a small part of the economic domain.

Economic activity is spurred by production which uses natural resources, labor and capital. It has changed over time due to technology (automation, accelerator of process, reduction of cost functions), innovation (new products, services, processes, expanding markets, diversification of markets, niche markets, increases revenue functions) such as, that which produces intellectual property and changes in industrial relations (most notably child labor being replaced in some parts of the world with universal access to education).

A market-based economy is one where goods and services are produced and exchanged according to demand and supply between participants (economic agents) by barter or a medium of exchange with a credit or debit value accepted within the network, such as a unit of currency. A command-based economy is one where political agents directly control what is produced and how it is sold and distributed. A green economy is low-carbon, resource efficient and socially inclusive. In a green economy, growth in income and employment is driven by public and private investments that reduce carbon emissions and pollution, enhance energy and resource efficiency, and prevent the loss of biodiversity and ecosystem services. [2] A gig economy is one in which short-term jobs are assigned or chosen via online platforms. [3] New economy is a term referred to the whole emerging ecosystem where new standards and practices were introduced, usually as a result of technological innovations.

Range

This map shows the gross domestic product (GDP) for every country (2015). Countries by GDP (PPP) Per Capita in 2015.svg
This map shows the gross domestic product (GDP) for every country (2015).

Today the range of fields of study examining the economy revolves around the social science of economics, but may include sociology (economic sociology), history (economic history), anthropology (economic anthropology), and geography (economic geography). Practical fields directly related to the human activities involving production, distribution, exchange, and consumption of goods and services as a whole are engineering, management, business administration, applied science, and finance.

All professions, occupations, economic agents or economic activities, contribute to the economy. Consumption, saving, and investment are variable components in the economy that determine macroeconomic equilibrium. There are three main sectors of economic activity: primary, secondary, and tertiary.

Due to the growing importance of the economical sector in modern times, [4] the term real economy is used by analysts [5] [6] as well as politicians [7] to denote the part of the economy that is concerned with the actual production of goods and services, [8] as ostensibly contrasted with the paper economy, or the financial side of the economy, [9] which is concerned with buying and selling on the financial markets. Alternate and long-standing terminology distinguishes measures of an economy expressed in real values (adjusted for inflation), such as real GDP, or in nominal values (unadjusted for inflation). [10]

Etymology

The English words "economy" and "economics" can be traced back to the Greek word οἰκονόμος (i.e. "household management"), a composite word derived from οἶκος ("house;household;home") and νέμω ("manage; distribute;to deal out;dispense") by way of οἰκονομία ("household management").

The first recorded sense of the word "economy" is in the phrase "the management of œconomic affairs", found in a work possibly composed in a monastery in 1440. "Economy" is later recorded in more general senses, including "thrift" and "administration".

The most frequently used current sense, denoting "the economic system of a country or an area", seems not to have developed until the 1650s. [11]

History

Ancient times

Storage room, Palace of Knossos. Pithoi in Knossos 3.jpg
Storage room, Palace of Knossos.

As long as someone has been making, supplying and distributing goods or services, there has been some sort of economy; economies grew larger as societies grew and became more complex. Sumer developed a large-scale economy based on commodity money, while the Babylonians and their neighboring city states later developed the earliest system of economics as we think of, in terms of rules/laws on debt, legal contracts and law codes relating to business practices, and private property. [12]

The Babylonians and their city state neighbors developed forms of economics comparable to currently used civil society (law) concepts. [13] They developed the first known codified legal and administrative systems, complete with courts, jails, and government records.

The ancient economy was mainly based on subsistence farming. The Shekel referred to an ancient unit of weight and currency. The first usage of the term came from Mesopotamia circa 3000 BC. and referred to a specific mass of barley which related other values in a metric such as silver, bronze, copper etc. A barley/shekel was originally both a unit of currency and a unit of weight, just as the British Pound was originally a unit denominating a one-pound mass of silver.

For most people, the exchange of goods occurred through social relationships. There were also traders who bartered in the marketplaces. In Ancient Greece, where the present English word 'economy' originated, many people were bond slaves of the freeholders. The economic discussion was driven by scarcity.

Middle ages

10 Ducats (1621), minted as circulating currency by the Fugger Family. German States Fugger 1621 10 Ducats.jpg
10 Ducats (1621), minted as circulating currency by the Fugger Family.

In Medieval times, what we now call economy was not far from the subsistence level. Most exchange occurred within social groups. On top of this, the great conquerors raised what we now call venture capital (from ventura, ital.; risk) to finance their captures. The capital should be refunded by the goods they would bring up in the New World. The discoveries of Marco Polo (1254–1324), Christopher Columbus (1451–1506) and Vasco da Gama (1469–1524) led to a first global economy. The first enterprises were trading establishments. In 1513, the first stock exchange was founded in Antwerpen. Economy at the time meant primarily trade.

Early modern times

The European captures became branches of the European states, the so-called colonies. The rising nation-states Spain, Portugal, France, Great Britain and the Netherlands tried to control the trade through custom duties and (from mercator, lat.: merchant) was a first approach to intermediate between private wealth and public interest. The secularization in Europe allowed states to use the immense property of the church for the development of towns. The influence of the nobles decreased. The first Secretaries of State for economy started their work. Bankers like Amschel Mayer Rothschild (1773–1855) started to finance national projects such as wars and infrastructure. Economy from then on meant national economy as a topic for the economic activities of the citizens of a state.

Industrial Revolution

Sachsische Maschinenfabrik in Chemnitz, Germany, 1868 Hartmann Maschinenhalle 1868 (01).jpg
Sächsische Maschinenfabrik in Chemnitz, Germany, 1868

The first economist in the true modern meaning of the word was the Scotsman Adam Smith (1723–1790) who was inspired partly by the ideas of physiocracy, a reaction to mercantilism and also later Economics student, Adam Mari. [14] He defined the elements of a national economy: products are offered at a natural price generated by the use of competition - supply and demand - and the division of labor. He maintained that the basic motive for free trade is human self-interest. The so-called self-interest hypothesis became the anthropological basis for economics. Thomas Malthus (1766–1834) transferred the idea of supply and demand to the problem of overpopulation.

The Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, and transport had a profound effect on the socioeconomic and cultural conditions starting in the United Kingdom, then subsequently spreading throughout Europe, North America, and eventually the world. The onset of the Industrial Revolution marked a major turning point in human history; almost every aspect of daily life was eventually influenced in some way. In Europe wild capitalism started to replace the system of mercantilism (today: protectionism) and led to economic growth. The period today is called industrial revolution because the system of Production, production and division of labor enabled the mass production of goods.

Recognition of the concept of “the economy”

The contemporary concept of "the economy" wasn't popularly known until the American Great Depression in the 1930s. [15]

After the chaos of two World Wars and the devastating Great Depression, policymakers searched for new ways of controlling the course of the economy. This was explored and discussed by Friedrich August von Hayek (1899–1992) and Milton Friedman (1912–2006) who pleaded for a global free trade and are supposed to be the fathers of the so-called neoliberalism. However, the prevailing view was that held by John Maynard Keynes (1883–1946), who argued for a stronger control of the markets by the state. The theory that the state can alleviate economic problems and instigate economic growth through state manipulation of aggregate demand is called Keynesianism in his honor. In the late 1950s, the economic growth in America and Europe—often called Wirtschaftswunder (ger: economic miracle) —brought up a new form of economy: mass consumption economy. In 1958, John Kenneth Galbraith (1908–2006) was the first to speak of an affluent society. In most of the countries the economic system is called a social market economy.

Late 20th – beginning of 21st century

ESET (IT security company) headquarters in Bratislava, Slovakia. Aupark Tower 2009.jpg
ESET (IT security company) headquarters in Bratislava, Slovakia.

With the fall of the Iron Curtain and the transition of the countries of the Eastern Bloc towards democratic government and market economies, the idea of the post-industrial society is brought into importance as its role is to mark together the significance that the service sector receives instead of industrialization. Some attribute the first use of this term to Daniel Bell's 1973 book, The Coming of Post-Industrial Society, while others attribute it to social philosopher Ivan Illich's book, Tools for Conviviality . The term is also applied in philosophy to designate the fading of postmodernism in the late 90s and especially in the beginning of the 21st century.

With the spread of Internet as a mass media and communication medium especially after 2000-2001, the idea for the Internet and information economy is given place because of the growing importance of e-commerce and electronic businesses, also the term for a global information society as understanding of a new type of "all-connected" society is created. In the late 2000s, the new type of economies and economic expansions of countries like China, Brazil, and India bring attention and interest to different from the usually dominating Western type economies and economic models.

Economic phases of precedence

The economy may be considered as having developed through the following phases or degrees of precedence.

In modern economies, these phase precedences are somewhat differently expressed by the three-sector theory. [ citation needed ]

Other sectors of the developed community include :

Economic measures

There are a number of concepts associated with the economy, such as these:

GDP

The GDP (gross domestic product) of a country is a measure of the size of its economy. The most conventional economic analysis of a country relies heavily on economic indicators like the GDP and GDP per capita. While often useful, GDP only includes economic activity for which money is exchanged.

Informal economy

Black market peddler on graffiti, Kharkiv Khar'k.nab.l.8 Spekuliant VizuIMG 3671.JPG
Black market peddler on graffiti, Kharkiv

An informal economy is economic activity that is neither taxed nor monitored by a government, contrasted with a formal economy. The informal economy is thus not included in that government's gross national product (GNP). Although the informal economy is often associated with developing countries, all economic systems contain an informal economy in some proportion.

Informal economic activity is a dynamic process that includes many aspects of economic and social theory including exchange, regulation, and enforcement. By its nature, it is necessarily difficult to observe, study, define, and measure. No single source readily or authoritatively defines informal economy as a unit of study.

The terms "underground", "under the table" and "off the books" typically refer to this type of economy. The term black market refers to a specific subset of the informal economy. The term "informal sector" was used in many earlier studies, and has been mostly replaced in more recent studies which use the newer term.

The informal sector makes up a significant portion of the economies in developing countries but it is often stigmatized as troublesome and unmanageable. However, the informal sector provides critical economic opportunities for the poor and has been expanding rapidly since the 1960s. As such, integrating the informal economy into the formal sector is an important policy challenge.

Economic research

Economic research is conducted in fields as different as economics, economic sociology, economic anthropology, and economic history.

See also

Related Research Articles

Gross domestic product Market value of goods and services produced within a country

Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period. GDP (nominal) per capita does not, however, reflect differences in the cost of living and the inflation rates of the countries; therefore using a basis of GDP per capita at purchasing power parity (PPP) is arguably more useful when comparing living standards between nations, while nominal GDP is more useful comparing national economies on the international market.

Economy of Kenya economy of the country

The economy of Kenya is a market-based economy with a liberalised external trade system and a few state enterprises. Major industries include agriculture, forestry, fishing, mining, manufacturing, energy, tourism and financial services. As of 2019, Kenya had an estimated GDP of $99.246 billion and per capita GDP of $2,010 making it the 62nd largest economy in the world.

Economy of Paraguay economy of the country

The economy of Paraguay is a market economy that is highly dependent on agriculture products. In recent years, Paraguay's economy has grown as a result of increased agricultural exports, especially soybeans. Paraguay has the economic advantages of a young population and vast hydroelectric power but has few mineral resources, and political instability has undercut some of the economic advantages present. The government welcomes foreign investment.

A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product (GDP), gross national product (GNP), net national income (NNI), and adjusted national income. All are specially concerned with counting the total amount of goods and services produced within the economy and by various sectors. The boundary is usually defined by geography or citizenship, and it is also defined as the total income of the nation and also restrict the goods and services that are counted. For instance, some measures count only goods & services that are exchanged for money, excluding bartered goods, while other measures may attempt to include bartered goods by imputing monetary values to them.

Informal economy economic activity unregulated by government

An informal economy is the part of any economy that is neither taxed nor monitored by any form of government.

This aims to be a complete article list of economics topics:

The world economy or global economy is the economy of all humans of the world, considered as the international exchange of goods and services that is expressed in monetary units of account. In some contexts, the two terms are distinct "international" or "global economy" being measured separately and distinguished from national economies while the "world economy" is simply an aggregate of the separate countries' measurements. Beyond the minimum standard concerning value in production, use and exchange the definitions, representations, models and valuations of the world economy vary widely. It is inseparable from the geography and ecology of Earth.

Economic anthropology is a field that attempts to explain human economic behavior in its widest historic, geographic and cultural scope. It is an amalgamation of economics and anthropology.It is practiced by anthropologists and has a complex relationship with the discipline of economics, of which it is highly critical. Its origins as a sub-field of anthropology began with work by the Polish founder of anthropology Bronislaw Malinowski and the French Marcel Mauss on the nature of reciprocity as an alternative to market exchange. For the most part, studies in economic anthropology focus on exchange. In contrast, the Marxian school known as "political economy" focuses on production.

Economic system system of production and exchange

An economic system, or economic order, is a system of production, resource allocation and distribution of goods and services within a society or a given geographic area. It includes the combination of the various institutions, agencies, entities, decision-making processes and patterns of consumption that comprise the economic structure of a given community. As such, an economic system is a type of social system. The mode of production is a related concept. All economic systems have three basic questions to ask: what to produce, how to produce and in what quantities and who receives the output of production.

Rostow's Stages of Economic Growth model is one of the major historical models of economic growth. It was published by American economist Walt Whitman Rostow in 1960. The model postulates that economic growth occurs in five basic stages, of varying length:

  1. The traditional society
  2. The preconditions for take-off
  3. The take-off
  4. The drive to maturity
  5. The age of high mass-consumption
Development theory

Development theory is a collection of theories about how desirable change in society is best achieved. Such theories draw on a variety of social science disciplines and approaches. In this article, multiple theories are discussed, as are recent developments with regard to these theories. Depending on which theory that is being looked at, there are different explanations to the process of development and their inequalities

Market (economics) Mechanisms whereby supply and demand confront each other and deals are made, involving places, processes and institutions in which exchanges occur.

A market is one of the many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange. While parties may exchange goods and services by barter, most markets rely on sellers offering their goods or services in exchange for money from buyers. It can be said that a market is the process by which the prices of goods and services are established. Markets facilitate trade and enable the distribution and resource allocation in a society. Markets allow any trade-able item to be evaluated and priced. A market emerges more or less spontaneously or may be constructed deliberately by human interaction in order to enable the exchange of rights of services and goods. Markets generally supplant gift economies and are often held in place through rules and customs, such as a booth fee, competitive pricing, and source of goods for sale.

The economic history of Brazil covers various economic events and traces the changes in the Brazilian economy over the course of the history of Brazil. Portugal, which first colonized the area in the 16th century, enforced a colonial pact with Brazil, an imperial mercantile policy, which drove development for the subsequent three centuries. Independence was achieved in 1822. Slavery was fully abolished in 1888. Important structural transformations began in the 1930s, when important steps were taken to change Brazil into a modern, industrialized economy.

Economic history of Turkey

The economic history of the Republic of Turkey may be studied according to sub-periods signified with major changes in economic policy:

  1. 1923–1929, when development policy emphasised private accumulation;
  2. 1929–1945 when development policy emphasised state accumulation in a period of global crises;
  3. 1950–1980, a period of state guided industrialisation based on import substituting protectionism;
  4. 1980 onwards, opening of the Turkish economy to liberal trade in goods, services and financial market transactions.
Financialization Term used in financial capital

Financialization is a term sometimes used to describe the development of financial capitalism during the period from 1980 to present, in which debt-to-equity ratios increased and financial services accounted for an increasing share of national income relative to other sectors.

Outline of economics Overview of and topical guide to economics

The following outline is provided as an overview of and topical guide to economics:

In economics and economic sociology, embeddedness refers to the degree to which economic activity is constrained by non-economic institutions. The term was created by economic historian Karl Polanyi as part of his substantivist approach. Polanyi argued that in non-market societies there are no pure economic institutions to which formal economic models can be applied. In these cases economic activities such as "provisioning" are "embedded" in non-economic kinship, religious and political institutions. In market societies, in contrast, economic activities have been rationalized, and economic action is "disembedded" from society and able to follow its own distinctive logic, captured in economic modeling. Polanyi's ideas were widely adopted and discussed in anthropology in what has been called the formalist–substantivist debate. Subsequently, the term "embeddedness" was further developed by economic sociologist Mark Granovetter, who argued that even in market societies, economic activity is not as disembedded from society as economic models would suggest.

The non-monetary economy represents work such as household labor, care giving, civic activity or even friends doing something for each other that does not have a monetary value but remains a vitally important part of the economy. While labor that results in monetary compensation is more highly valued than unpaid labor, nearly half of American productive work goes on outside of the market economy and is not represented in production measures such as the GDP.

Socialist economics comprises the economic theories, practices and norms of hypothetical and existing socialist economic systems. A socialist economic system is characterized by social ownership and operation of the means of production that may take the form of autonomous cooperatives or direct public ownership wherein production is carried out directly for use rather than for profit. Socialist systems that utilize markets for allocating capital goods and factors of production among economic units are designated market socialism. When planning is utilized, the economic system is designated as a socialist planned economy. Non-market forms of socialism usually include a system of accounting based on calculation-in-kind to value resources and goods.

This glossary of economics is a list of definitions of terms and concepts used in economics, its sub-disciplines, and related fields.

References

  1. James, Paul; with Magee, Liam; Scerri, Andy; Steger, Manfred B. (2015). Urban Sustainability in Theory and Practice: Circles of Sustainability. London: Routledge. p. 53.
  2. "Archived copy" (PDF). Archived from the original (PDF) on November 11, 2013. Retrieved October 26, 2014.CS1 maint: archived copy as title (link)
  3. "How governments should deal with the rise of the gig economy". The Economist. Retrieved October 8, 2018.
  4. The volume of financial transactions in the 2008 global economy was 73.5 times higher than nominal world GDP, while, in 1990, this ratio amounted to "only" 15.3 ("A General Financial Transaction Tax: A Short Cut of the Pros, the Cons and a Proposal" Archived April 2, 2012, at the Wayback Machine , Austrian Institute for Economic Research, 2009)
  5. "Meanwhile, in the Real Economy", Wall Street Journal , July 23, 2009
  6. "Bank Regulation Should Serve Real Economy", Wall Street Journal, October 24, 2011
  7. "Perry and Romney Trade Swipes Over ‘Real Economy'", Wall Street Journal, August 15, 2011
  8. "Real Economy" Archived February 9, 2018, at the Wayback Machine definition in the Financial Times Lexicon
  9. "Real economy" definition in the Economic Glossary
  10. • Deardorff's Glossary of International Economics, search for real .
       • R. O'Donnell (1987). "real and nominal quantities," The New Palgrave: A Dictionary of Economics , v. 4, pp. 97-98.
  11. Dictionary.com, "economy." The American Heritage Dictionary of the English Language, Fourth Edition. Houghton Mifflin Company, 2004. October 24, 2009.
  12. Sheila C. Dow (2005), "Axioms and Babylonian thought: a reply", Journal of Post Keynesian Economics27 (3), p. 385-391.
  13. Charles F. Horne, Ph.D. (1915). "The Code of Hammurabi : Introduction". Yale University. Retrieved September 14, 2007.
  14. François Quesnay. An Encyclopedia of the Early Modern World- preview entry:Physiocrats & physiocracy. Charles Scribner & Sons. Retrieved February 24, 2014.
  15. Goldstein, Jacob (February 28, 2014). "The Invention Of 'The Economy'". NPR - Planet Money. Retrieved April 6, 2017.

Bibliography

Further reading