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Related to Economic theories: game theory, Keynesian economics
economics,study of how human beings allocate scarce resources to produce various commodities and how those commodities are distributed for consumption among the people in society (see distributiondistribution,
in economics, the allocation of a society's total wealth among various economic groups. Distribution, in that sense, does not refer to the physical marketing or circulation of goods, which is part of the process of exchange, but to the relative well-being and
..... Click the link for more information. ). The essence of economics lies in the fact that resources are scarce, or at least limited, and that not all human needs and desires can be met. How to distribute these resources in the most efficient and equitable way is a principal concern of economists. The field of economics has undergone a remarkable expansion in the 20th cent. as the world economy has grown increasingly large and complex. Today, economists are employed in large numbers in private industry, government, and higher education (see economic planningeconomic planning,
control and direction of economic activity by a central public authority. In its modern usage, economic planning tends to be pitted against the laissez-faire philosophy which developed in the 18th cent.
..... Click the link for more information. ). Many subjects, such as political science and sociology, which were once regarded as part of the study of economics, have today become separate disciplines, although the study of any one generally implies a working knowledge of the others.
Ancient and Medieval Periods
The first attempts to analyze economic problems appear in the writings of the ancient Greeks. Plato recognized the economic basis of social life and in his Republic organized a model society on the basis of a careful division of labor. Aristotle, too, attributed great importance to economic security as the basis for social and political health and saw the owner of a middle-sized plot of land as the ideal citizen. Roman writers such as Cicero, Vergil, and Varro gave significant advice about the economics of agriculture. The medieval period was marked by the disruption of the flourishing commerce of the ancient world, and its economic life was dominated by feudalismfeudalism
, form of political and social organization typical of Western Europe from the dissolution of Charlemagne's empire to the rise of the absolute monarchies. The term feudalism is derived from the Latin feodum,
..... Click the link for more information. . Economic writings of the age focus on the just price for goods and criticism of usury.
Mercantilism, the Physiocrats, and Adam Smith
In the transition to modern times (16th–18th cent.), European overseas expansion led to the growth of commerce and the economic policies of mercantilismmercantilism
, economic system of the major trading nations during the 16th, 17th, and 18th cent., based on the premise that national wealth and power were best served by increasing exports and collecting precious metals in return.
..... Click the link for more information. , a system that inspired a substantial body of literature on the subject of economic nationalism. In the late 17th and the 18th cents., protest against the governmental regulation characteristic of mercantilism was voiced, especially by the physiocratsphysiocrats
, school of French thinkers in the 18th cent. who evolved the first complete system of economics. They were also referred to simply as "the economists" or "the sect." The founder and leader of physiocracy was François Quesnay.
..... Click the link for more information. . That group advocated laissez-fairelaissez-faire
[Fr.,=leave alone], in economics and politics, doctrine that an economic system functions best when there is no interference by government. It is based on the belief that the natural economic order tends, when undisturbed by artificial stimulus or regulation, to
..... Click the link for more information. , arguing that business should follow freely the "natural laws" of economics without government interference. They regarded agriculture as the sole productive economic activity and encouraged the improvement of cultivation. Because they considered land to be the sole source of wealth, they urged the adoption of a tax on land as the only economically justifiable tax.
In the 18th cent. important work in economics was done by the Scottish philosopher David HumeHume, David
, 1711–76, Scottish philosopher and historian. Educated at Edinburgh, he lived (1734–37) in France, where he finished his first philosophical work, A Treatise of Human Nature (1739–40).
..... Click the link for more information. . His analysis of the natural advantages that some nations enjoy in the cultivation of certain products and his observations on the flow of commerce became the basis for the theory of international trade. The most important work of the 18th cent., however, was Adam SmithSmith, Adam,
1723–90, Scottish economist, educated at Glasgow and Oxford. He became professor of moral philosophy at the Univ. of Glasgow in 1752, and while teaching there wrote his Theory of Moral Sentiments
..... Click the link for more information. 's An Inquiry into the Nature and Causes of the Wealth of Nations (1776), which is considered by many to be the first complete treatise on economics. Smith identified self-interest as the basic economic force and, through his analysis of the division of labordivision of labor,
in economics, the specialization of the functions and roles involved in production. Division of labor is closely tied with the standardization of production, the introduction and perfection of machinery, and the development of large-scale industry.
..... Click the link for more information. and his comprehensive study of the development of economic institutions in the West, established economics as a major area of study. John MillarMillar, John,
1735–1801, Scottish philosopher and historian. Millar studied at Glasgow, where he became the chief disciple of Adam Smith. In 1761 Millar became professor of civil law at Glasgow, and his lectures there made him a national figure.
..... Click the link for more information. , a follower of Smith, incorporated and developed these ideas into a highly sophisticated economic interpretation of history. Smith's theories, especially his advocacy of free tradefree trade,
in modern usage, trade or commerce carried on without such restrictions as import duties, export bounties, domestic production subsidies, trade quotas, or import licenses.
..... Click the link for more information. , played an important part in the Industrial RevolutionIndustrial Revolution,
term usually applied to the social and economic changes that mark the transition from a stable agricultural and commercial society to a modern industrial society relying on complex machinery rather than tools.
..... Click the link for more information. then taking place in Britain.
Malthus, Ricardo, and Mill
One of the most influential writers of the 19th cent. was Thomas MalthusMalthus, Thomas Robert
, 1766–1834, English economist, sociologist, and pioneer in modern population study. A graduate of Cambridge, he was a professor at the East India College, London, from 1805 until his death.
..... Click the link for more information. , whose predictions that population growth would always tend to outstrip advances in the means of subsistence earned for economics the title "the dismal science." The most important economist to follow Smith was David RicardoRicardo, David,
1772–1823, British economist, of Dutch-Jewish parentage. At the age of 20 he entered business as a stockbroker and was so skillful in the management of his affairs that within five years he had amassed a huge fortune.
..... Click the link for more information. . His analysis of rent long remained the classic account, while his theory of labor value was later adopted by socialists as well as classical economists. Ricardo's "iron law of wages" supplemented Malthus's pessimistic thesis by asserting that wages tend to stabilize at the subsistence level. John Stuart MillMill, John Stuart,
1806–73, British philosopher and economist. A precocious child, he was educated privately by his father, James Mill. In 1823, abandoning the study of law, he became a clerk in the British East India Company, where he rose to become head of the examiner's
..... Click the link for more information. was a follower of Ricardo and contributed to the study of international trade as well as to the study of the economics of industrial expansion. Among critics of free trade outside Britain were the German Friedrich List and the American Henry C. CareyCarey, Henry Charles,
1793–1879, American economist, b. Philadelphia; son of Mathew Carey. In 1835 he retired from publishing, where he had done notable work, to devote himself to economics. His Principles of Political Economy (3 vol.
..... Click the link for more information. .
The Socialists and Marx
The early exponents of socialismsocialism,
general term for the political and economic theory that advocates a system of collective or government ownership and management of the means of production and distribution of goods.
..... Click the link for more information. , especially in France, attacked the idea of the necessity of private property and competition and were interested in revamping the economic and social order. Among those were C. H. Saint-Simon, Robert Owen, Charles Fourier, and Louis Blanc. In Germany the historical school arose under Wilhelm Roscher, Bruno Hildebrand, and Karl Knies, who doubted the existence of universal economic laws and emphasized the particular development of economic institutions in individual nations.
The greatest challenge to classical economics came from the followers of Karl MarxMarx, Karl,
1818–83, German social philosopher, the chief theorist of modern socialism and communism. Early Life
Marx's father, a lawyer, converted from Judaism to Lutheranism in 1824.
..... Click the link for more information. . Marx's critique of capitalismcapitalism,
economic system based on private ownership of the means of production, in which personal profit can be acquired through investment of capital and employment of labor.
..... Click the link for more information. was moral and social, as well as economic; but in the exposition of the workings of the capitalist system he and his followers developed important insights into the structural weaknesses of the market economy, especially the recurrence of economic crises (see depressiondepression,
in economics, period of economic crisis in commerce, finance, and industry, characterized by falling prices, restriction of credit, low output and investment, numerous bankruptcies, and a high level of unemployment.
..... Click the link for more information. ).
Further Evolution of Classical Economics
At the same time as Marx was writing, the principles of classical economics were being reformulated and refined—it was at this time that the term "economics" replaced the term "political economy," which had been used through the mid-19th cent. The most important refinement was the doctrine of marginal utility, which asserts that the valuevalue,
in economics, worth of a commodity in terms of other commodities, or in terms of money (see price). Value depends on both desirability and scarcity. The marginal theory of value, pioneered in the late 19th cent.
..... Click the link for more information. of an item is determined by the need for it and by its relative scarcity or abundance at any given time—not by any intrinsic or inherent worth. The leading theorists in the development of the concept were William Stanley JevonsJevons, William Stanley
, 1835–82, English economist and logician. After working in Australia as assayer to the mint, he taught at Owens College, Manchester, and University College, London.
..... Click the link for more information. of Britain, Leon Walras of France, and Carl MengerMenger, Carl
, 1840–1921, Austrian economist, a founder of the Austrian school of economics. He was professor of economics at the Univ. of Vienna from 1873 until 1903, when he retired to devote himself to research.
..... Click the link for more information. of Austria. In the United States, John Bates ClarkClark, John Bates,
1847–1938, American economist, b. Providence, R.I. He studied economics in the U.S. and Germany, and taught at Columbia Univ. and several other colleges in the United States.
..... Click the link for more information. was notable in the development of marginal utility theory, forming his own hypothesis regarding the distribution of wealth. Classical economics reached its fullest expression at the end of the 19th cent. in the work of Alfred MarshallMarshall, Alfred,
1842–1924, English economist. At Cambridge, where he taught from 1885 to 1908, he exerted great influence on the development of economic thought of the time; one of his students was John Maynard Keynes.
..... Click the link for more information. . Marshall used mathematics to perfect the application of classical techniques and introduced important modifications to the notions of competition, marginal utility, and rent.
Swedish economist Knut Wicksell was influential in the development of monetary theory, which concerned itself with overall price levels and interest rates in an economy. His work foreshadowed the most important modification of classical concepts of the free economy, exemplified in the work of John Maynard KeynesKeynes, John Maynard, Baron Keynes of Tilton
, 1883–1946, English economist and monetary expert, studied at Eton and Cambridge. Early Career and Critique of Versailles
..... Click the link for more information. . In his General Theory of Employment, Interest, and Money (1936), Keynes opened up a whole new range of investigation into business cycles. A principal result of Keynes's teaching has been reflected in governmental attempts to control the business cycle by putting money directly into the economy; the "pump-priming" technique, often accompanied by an unbalanced budget, is now a part of most capitalist economic systems.
Since World War II
After World War II, emphasis was placed on the analysis of economic growth and development. Western economists notable for their contributions to the economics of growth and development include Gunnar MyrdalMyrdal, Gunnar
, 1898–1987, Swedish economist, sociologist, and public official; husband of Alva Myrdal. A graduate (1927) of the Univ. of Stockholm, he became lecturer (1927) and professor (1931) of economics there.
..... Click the link for more information. of Sweden, Sir Arthur LewisLewis, Sir Arthur
(Sir William Arthur Lewis), 1915–91, British economist, b. St. Lucia. A graduate (1940) of the London School of Economics, he was later a professor of economics at the Univ. of Manchester (1948–58) and at Princeton (1963–83).
..... Click the link for more information. of Great Britain, and Joseph SchumpeterSchumpeter, Joseph Alois
, 1883–1950, Austrian-American economist, LL.D. Univ. of Vienna, 1906. He began practicing law but turned to teaching two years later. He was professor of economics at the Univ.
..... Click the link for more information. of the United States.
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. The use of complex mathematical techniques and statistical data in economic forecasting has resulted in a new branch of economics known as econometricseconometrics,
technique of economic analysis that expresses economic theory in terms of mathematical relationships and then tests it empirically through statistical research.
..... Click the link for more information. . British economist Arthur PigouPigou, Arthur Cecil
, 1877–1959, British economist, grad. King's College, Cambridge. He was a lecturer at University College, London, and at Cambridge. He was professor of political economy at Cambridge from 1908 to 1943.
..... Click the link for more information. was influential in the development of welfare economics, an important branch of the discipline that suggested that an economic system was better if even one person's satisfaction was increased while no one else's was decreased.
In the 1980s supply-side economicssupply-side economics,
economic theory that concentrates on influencing the supply of labor and goods as a path to economic health, rather than approaching the issue through such macroeconomic concerns as gross national product.
..... Click the link for more information. (which sees economic growth as essential for improving the material health of society) was used as a policy tool by the ReaganReagan, Ronald Wilson
, 1911–2004, 40th president of the United States (1981–89), b. Tampico, Ill. In 1932, after graduation from Eureka College, he became a radio announcer and sportscaster.
..... Click the link for more information. administration. Another modern economic school that was influential in the Reagan years is monetarism; monetarists, such as Milton FriedmanFriedman, Milton
, 1912–2006, American economist, b. New York City, Ph.D. Columbia, 1946. Friedman was influential in helping to revive the monetarist school of economic thought (see monetarism).
..... Click the link for more information. , believe that the money supply exerts a dominant influence on the economy. In the 1990s, Nobel laureate Gary BeckerBecker, Gary Stanley,
1930–2014, American economist. A professor at the Univ. of Chicago from 1968, he was awarded the 1992 Nobel Memorial Prize in Economic Sciences for extending the scope of microeconomic analysis.
..... Click the link for more information. extended the scope of macroeconomic analysis by applying economic reasoning to human behavior, including the use of sociology, anthropology, and other disciplines. Game theory has also been appied to economics (see games, theory ofgames, theory of,
group of mathematical theories first developed by John Von Neumann and Oskar Morgenstern. A game consists of a set of rules governing a competitive situation in which from two to n
..... Click the link for more information. ).
See D. Colander and A. W. Coats, ed., The Spread of Economic Ideas (1989); R. L. Heilbroner and L. C. Thurow, Economics Explained (rev. ed. 1998); R. L. Heilbroner, The Worldly Philosophers (7th rev. ed. 1999); P. Samuelson and W. Nordhaus, Economics (18th ed. 2004); S. Nasar, Grand Pursuit: The Story of Economic Genius (2011).
economicsthe specialist social science concerned with the study of economic behaviour. The term derives from the Greek for ‘household management’, and it has nowadays mainly replaced the earlier term for economic science, POLITICAL ECONOMY. The term can also be used to refer to the study of any behaviour in which there is a scarcity of means to achieve given ends (L. Robbins, The Nature and Significance of Economic Science, 1932).
A general distinction is drawn between microeconomics, which is concerned with the behaviour of individual units within an economy, such as individual consumers or firms, and macroeconomics, which is concerned with the study of aggregate economic activity, e.g. overall determinants of national income, levels of employment, etc.
Adam SMITH is usually regarded as the founding father of modern economics. The characteristic approach within the subject has been the method of simplification of IDEALIZATION (see also ECONOMIC MAN). This approach was developed by CLASSICAL ECONOMISTS, such as David Ricardo (1772-1823) and John Stuart MILL, and continued in NEOCLASSICAL ECONOMICS and in the work of modern economists.
Like sociology, although not to the same extent, economics has remained divided by competing perspectives. Important divisions within the modern subject exist between KEYNESIAN ECONOMICS and MONETARISM. Other distinctive approaches include MARXIAN ECONOMICS and INSTITUTIONAL ECONOMICS. See also RATIONAL CHOICE THEORY, EXCHANGE THEORY, THEORY OF GAMES, ECONOMIC SOCIOLOGY.
a branch of science that studies production relations or the specific aspects of production relations in a given sphere of social production and exchange.
As a field of human knowledge, economics entails (1) the study of the objective laws governing the economic structure of society within the framework of the socioeconomic formations that regularly follow and replace one another, (2) the theoretical analysis of the processes and phenomena in the various spheres and branches of the national economy, and (3) the elaboration of practical recommendations with respect to the production and distribution of the necessities of life. Economics is one of the social sciences. The economic sciences are the product of long-term historical development. The establishment of a system of economic knowledge was directly tied to the advent of political economy as a science.
Works by classical bourgeois political economists laid the scientific foundation for the development of the economic sciences; such works investigated many important socioeconomic processes in the capitalist economies. The consolidation of the capitalist mode of production, the increasingly antagonistic opposition between hired labor and capital, and the transformation of the bourgeoisie from a progressive into a reactionary class contributed to the emergence of vulgar bourgeois political economy, which supplanted the analysis of the internal laws of the capitalist economic system with the description and systematization of externally perceived economic processes and phenomena.
The possibility of creating a genuinely scientific system of economic knowledge arose with the advent of Marxist economic doctrine, which incorporated the highest achievements of previous economic thought and creatively reworked them in accordance with materialist historical principles. F. Engels and V. I. Lenin made enormous contributions to K. Marx’ economic theory. Marxist-Leninist economic theory was subsequently developed and concretized in the theoretical activity of the CPSU and of the fraternal Marxist-Leninist parties as well as in scholarly works by Soviet and foreign Marxist economists.
The Marxist system of classification differentiates between basic and applied economic sciences. The task of the basic sciences is to study objective economic laws and theoretically justify their effective application. The basic sciences include political economy, history of the national economy, history of economic thought, national economic planning, theory of economic management, statistics, accounting, and the analysis of economic activity. The applied sciences utilize the results of basic studies to solve specific practical problems. The various types of applied economic sciences are differentiated by function (finances and credit, money circulation, pricing, demography, labor economics, and material and technical supply), region or geographic area (economics of individual countries), and branch (for example, industrial, agricultural, construction, transport, or communications economics).
Political economy plays the principal role in the system of economic sciences, serving as the theoretical and methodological foundation of the entire complex formed by these sciences. Increased emphasis on the role of mathematics in economic research distinguishes the present stage of development of the economic sciences. In particular, the modeling of economic processes is being intensively developed. The socialist countries make practical use of the theses, conclusions, and recommendations of the economic sciences in the drafting and implementation of economic policy.
REFERENCESMarx, K. K kritike politicheskoi ekonomii: Predislovie. K. Marx and F. Engels, Soch., 2nd ed., vol. 13.
Lenin, V. I. “Tri istochnika i tri sostavnykh chasti marksizma.” Poln. sobr. soch., 5th ed., vol. 23.
Lenin, V. I. “Karl Marks.” lbid., vol. 26.
Lenin, V. I. “Ekonomika i politika v epokhu diktatury proletariata.” Ibid., vol. 39.
Materialy XXV s”ezda KPSS. Moscow, 1977.
Sistema ekonomicheskikh nauk. Editor in chief, K. V. Ostrovitianov. Moscow, 1968.
Eremin, A. M. O sisteme ekonomicheskikh nauk. Moscow, 1968.
Abalkin, L. I. Politicheskaia ekonomiia i ekonomicheskaia politika. Moscow, 1970.
Khachaturov, T. S. Sovetskaia ekonomika na sovremennom etape. Moscow, 1975.
L. I. ABALKIN and A. A. KHANDRUEV
economics[‚ek·ə′näm·iks or ‚ē·kə′näm·iks]