ECONOMICS has been described as a study of man in his ordinary business of life. As such it would seem to be a most prosaic and unromantic discipline. The term economics derives from two Greek words, oikou and nomos, meaning the ‘rule or law of the household’. The concept of the efficient use of resources on the part of the family was later carried over to society as a whole. The major role of economics seems to be the study of how best to utilize a fixed and fully employed productive potentials. Now, the productive capacity of modern economics has grown tremendously. Growing productivity and income, perhaps the most powerful engines of social change in modern times, inevitably affect the problems confronting those interested in social welfare.
The Wealth Of Nations (1776), one of the most influential books ever written was therefore not just a study of economics but a survey of human social psychology: about life, welfare, political institutions, the law, and morality.
© Adam Smith ⇒ Every individual… neither intends to promote the public interest, nor knows how much he is promoting it… he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain,and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. The Wealth Of Nations, Book IV, Chapter II, p. 456, para. 9.
© Alfred Marshall ⇒ Economics is the study of people in the ordinary business of life.
© Lionel Robbins⇒ Economics is the science which studies human behaviour as a relationship between given ends and scarce means which have alternative uses.
© Paul A. Samuelson⇒ Economics is the “study of how societies use scarce resources to produce valuable commodities and distribute them among different people.
© Say’s Law⇒ Supply creates its own demand
© John Maynard Keynes⇒ The Interaction of aggregate demand and aggregate supply may lead to stable unemployment equilibria.
⇒ Economics Is All About Efficiency”
⇒ A study of economics can describe all aspects of a country’s economy, such as how a country uses its resources, how much time labourers devote to work and leisure, the outcome of investing in industries or financial products, the effect of taxes on a population, and why businesses succeed or fail.
Economics & Finance
11 thoughts on “Economics”
Jessi, I fear you labor under a few strong misconceptions. Just as there is no such science as politics the same is true for economics. It may interest you that Adam Smith was a professor of Moral Philosophy, which is sometimes confused with the study of political sentiment. Second, even though a great many economists today make a great deal out of mathematical relationships they believe apply to the study of economics, these relationships are more statistical than anything else. Economics is about human behavior and I can assure you that while some individuals believe they can produce mathematical models of such relationships, it’s always after the fact. We do not act on mathematical formulae anymore than a mouse does.
Second, economies, unless they are totally isolated, are interrelated to some degree. But on a global scale, the global economy is a closed system. One might well call it a zero sum society from which the only real growth comes from an increase in population. Any other growth is more akin to theft. The world could build one hundred billion automobiles, but who would buy them all? And unless we all with to weigh a thousand pounds there are limits as to how many pizzas we can consume on a daily basis.
Third, consumption is the key to the study of what was called political economy in Adam Smith’s day. Remember, he wrote about his observations on human behavior as it applied to the everyday consumption by individuals. That many of those individuals were occupied it the manufacturing and supply chain to meet the demand of such consumption was not lost on him either. Even a hunter-gatherer society is a consumption based economy.
Fourth, in its most simplistic terms, economics is the study of who gets what where, when, and how. As far as technology, it only magnifies the effects of efficient production. The invention of the plow that could be pulled by a pair of oxen was a technological innovation that increased the ability on men and women to grow more food with less effort. Yes, it improved productivity. The other component of productivity is capital or savings, that is deferred demand or unspent wages. If I grow X bushels of corn and harvest that amount, I must set aside sufficient seed corn to grow roughly the same amount of corn next year. But if I set aside X amount of seed corn and add to it Y amount that I do not consume, then I am investing more seed corn for a greater yield next year. We call this capitalism.
Fifth, markets are no longer free. A free market means that there is no outside or extraneous influence brought to bear on the market. It is strictly a buyer beware market. If you buy at too high a price, that is your look out. If you sell at too low a price, that is your loss. You must judge the quality of the goods you buy and determine what their value is for your use. No one owes you a living. You don’t work, you don’t eat. Children and the aged are special cases.
Sixth, economics is not about efficiency, it never was. Supply does not generate demand by itself, it never did. Demand, on the other hand, generates most supply. The exception comes with non essential items. We all need food but we don’t all need iWatches. And there was a demand for the iWatch long before the supply came to market. Most recessions are caused by the oversupply of the wrong goods and services.
As you might begin to see, so many of those trained in academia seem to have gotten it wrong. One has only to go back to a few decades before Einstein to understand that most of those in the world of Physics as professors and researchers didn’t get it all right. By 1880 we could see pronouncements that all the know laws of physics were know and there was little left to explore. A great body of economic thought and theory rests on false assumptions.
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Many thanks for your thoughts on my blog.
Adam smith wrote a book The Wealth of Nations in 1776, since then Economics is recognised as a different subject of study. As a bench mark of economics Adam Smith shouldn’t be a pure economist. There are many examples of established economists who have come from different discipline. It applies other fields as well.
The main focus of The Wealth of Nations is economic growth which is possible by the specialization of labour force/human resource. According to Smith, the wealth of nations is labour force and education accelerates productivity of labour where division of labour increase individual productivity and personal work satisfaction. Smith believes on laissez fair. Similarly, Jim O’Neill has said that by 2035 China will have the largest economy, the US second and India third’. He has given a reason behind this is size of population that is labour force. So, it is better to see an economic sustainability through its labour’s condition, fairness and specialization.
‘Supply creates its own demand, ‘that is Say’s law from which economics especially law of supply was developing through. I am not fully convinced on it but we have to consider an example of Harry Potter of J K Rowling. The author never worked out for its market before publishing the book. Just wrote and published. Another example is Korean song Gangnam Style of Psy. I think when supply came to the market then demand was created day bay day even unknowingly. Now they have been an issue of market. So it is a way of consumer’s choice rather than prejudice. Am I not right?
I have to say that economics is also a matter of efficiency. Let’s see the examples from law of cost and production, cost benefit analysis, welfare, utility and satisfaction, alternative uses of goods, production possibility frontier, investment, and profit all can tell about efficiency more or less.
Now we are passing through the Washington Consensus which also known as Globalization suggested by John Williamson. But now due to intolerable inequality it has been sharply criticised by many economists including Professor Joseph Stiglitz, Professor Thomas Piketty and others. So, what I believe is no thought is without alternative, neither static it is. Time and need play an important role to bring change.
If I have to say, economist and principles of economics are equally responsible to have not satisfactory result from the economic development. So there is still something need to be considered because the World, now, is in transition of humanity. For the sake of future, new setting of the state is needed because, for example, even education: academic institutions are selling their certificates at higher costs and the cases is judged in line with man-made law that is designed by the same group who want to protect their interest. That ends the hope of the poor. Justice is denied. Today’s intolerable inequality is state supported. Because super managers are allowed to create discriminatory pay rate policy and gender pay gap. A single decision of super-managers is enough to allocate resources. There is no any check and balance on self-awarded nature of human greed. I would like to remember ‘‘how much land (property) does a man need’’ by Leo Tolstoy. We need to protect the society.
Management guru Professor Henry Mintzberg says- this is not a failure of economics. It is sheer failure of management. So he further says ‘The triumph of capitalism was the triumph of balance over imbalance. In turn capitalism now seems to be getting out of balance’’. Unileaver’s CEO Paul Polman says- ‘‘Capitalists are big threat of capitalism…it is time to consider new models for…conscious, moral or inclusive capitalism’’. This is the reality of present capitalism.
Finally I would like add a quote of Einstein ‘‘those world will not be destroyed by those who do evil, but by those who watch and do nothing.’’
This is the world of multi-ism. So it does not mean everybody should have same thought. So I don’t think there is any misconception around the World. Thought is dynamic. Vision may vary whatever the colour glasses have got.
I value your thought. Thank you again.
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Even at the global level, it has not been a zero sum market for the past 200 years. What you said was true before 1850s or so. Even accounting for population, per capita GDP of the world as a whole has risen by at least 100 fold since. Please check out Angus Maddeson’s great book: The World Economy
Citing overproduction of autos that no one will buy is not the best example of a zero sum economy.
There are many influences on the market that limit its freedom. There is little in human experience that conforms to a “pure” concept. Markets are not immune from this. Information asymmetry is one of the things that limit market freedom as you point out, but they are not the only ones. Public sector interference represents a far more prevalent reason. As I recall (cant remember the reference right now) only around 25% of the world populations live in areas where markets are more free than otherwise from government influence.
just some thoughts.
Thank you Adnan for the visit and thoughts. you raised genuine issue ! The book which you mentioned is interesting, will go through.
Jessi, I see you are well read. Of course the authors you have read tend to conflict with each other and the facts in the world at large. To believe that China, for example, will have the world’s largest economy based solely on population is a delusion. Actually, India has more people. They also have on average a younger population. Demographics make a difference as the Chinese, like the Japanese, have a rapidly aging population due to their one child per family. But the structural causes of economic growth also have to do with credit and the amount of debt that has been leveraged. If you never question what you know and always rely on experts you will always be disappointed. There is a revolutionary movement in economics that has been questioning the basic assumptions held by the various economic experts. But if you don’t do the research you will never know just how much you hold dear is so wrong. The science of economics, and it is not a science, is based on observed events. Says law was a supposition put forth to justify excessive spending by the French King. Yes, one can point to some of the popular impulses of social spending. But consider, if I start a factory to manufacture buggy whips, how many will I sell? Certainly not millions. Fads come and go. Ever hear of the Hula Hoop? Millions were sold and thousands more were left unsold in warehouses. Yet economist after economist swear that Says law is absolutely true. However, I digress. Believe what you are taught and what you read, but don’t be surprised when you learn that much of what you hold as knowledge turns out to be false.
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Thank you William, I really enjoyed to read your thought.
To be isolated from thoughts delivered by academia that has influenced the society is impossible but we deserve the right to judge them. What need to be considered is ‘‘academia are working for pittance and working to fulfil unnecessary demand of corporate society.’’ I think, they are not free to apply their knowledge but they have to work through targeted profit and corporate mission. So it is true there is massive change we can expect in justice, fairness and sustainability. Economics is massively misused by politiconomist (I prefer to say to finance minister and others who are appointed by the government, who come from economics but work for vote and politics). Let’s consider that how many economic/finance ministers are working through economic principle! Their main responsibility is to save party politics. Isn’t it true William?
Hello Jesi, I have written a sort of replay for you, over three thousand words. I would not expect you to agree with what I have to say, merely consider the possibilities. I also have on my site a good many other articles that relate to economics. I’m sure you may well disagree with me. But if it suits your purpose, your need to consider other points of view the please do read them. For myself, I believe that if a man is to know anything at all he must question what he knows and how he knows. If a man is to think for himself them he must question what he thinks and how he thinks. The world is filled with individuals who blindly follow and never question nor think for themselves. I don’t believe they are wrong in doing so, just the poorer for not doing. Unfortunately for the average man and woman that is the accommodation they make in life. It is the human condition.
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Thank you for the thought but sorry for late reply.
Well, I am a regular visitor of your site. I really appreciate your efforts; there are lot of things to learn. If you would like,
I have written an article posted on the blog on Philanthropy, This narrowly designed world is not able to give oppurtunity for all men.
Hi Jesi, and thank you for your kind comments on my blog, https://alex101weather.wordpress.com/
A quick thought on The Wealth of Nations. An over reliance on TWoN as the bedrock for the study economics and application misses Smith’s other great work, The Theory of Moral Sentiments.Taken together we see a rather different slant on politics & economics. Alex Salmond former First Minister of Scotland in his lecture at Glasgow University may be of some help, you will find a video of it here http://www.gla.ac.uk/news/headline_402994_en.html, There is also a fine summary of the book here http://en.wikipedia.org/wiki/The_Theory_of_Moral_Sentiments
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Thank you Alex for the info. Definitely I will go through. I had been to Banff via Glasgow in 2006 in Xmas time. It was amazing to step in to the birth city of Adam Smith.
I agree with you as there is something need to be reviewed on economic policy to make it fairer.
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