Adam Smith was a Scottish economist and author as well as a moral philosopher, a pioneer of political economy and a key figure during the Scottish Enlightenment known as"The Father of Economics" or"The Father of Capitalism". Smith wrote two classic works, The Theory of Moral Sentiments and An Inquiry into the Nature and Causes of the Wealth of Nations; the latter abbreviated as The Wealth of Nations, is considered his magnum opus and the first modern work of economics. In his work, Adam Smith introduced his theory of absolute advantage. Smith studied social philosophy at the University of Glasgow and at Balliol College, where he was one of the first students to benefit from scholarships set up by fellow Scot John Snell. After graduating, he delivered a successful series of public lectures at Edinburgh, leading him to collaborate with David Hume during the Scottish Enlightenment. Smith obtained a professorship at Glasgow, teaching moral philosophy and during this time and published The Theory of Moral Sentiments.
In his life, he took a tutoring position that allowed him to travel throughout Europe, where he met other intellectual leaders of his day. Smith laid the foundations of classical free market economic theory; the Wealth of Nations was a precursor to the modern academic discipline of economics. In this and other works, he developed the concept of division of labour and expounded upon how rational self-interest and competition can lead to economic prosperity. Smith was controversial in his own day and his general approach and writing style were satirised by Tory writers in the moralising tradition of William Hogarth and Jonathan Swift. In 2005, The Wealth of Nations was named among the 100 best Scottish books of all time. Smith was born in the County of Fife, Scotland, his father Adam Smith, was a Scottish Writer to the Signet and prosecutor and served as comptroller of the customs in Kirkcaldy. In 1720, he married Margaret Douglas, daughter of the landed Robert Douglas of Strathendry in Fife, his father died two months after he was born.
The date of Smith's baptism into the Church of Scotland at Kirkcaldy was 5 June 1723 and this has been treated as if it were his date of birth, unknown. Although few events in Smith's early childhood are known, the Scottish journalist John Rae, Smith's biographer, recorded that Smith was abducted by gypsies at the age of three and released when others went to rescue him. Smith was close to his mother, who encouraged him to pursue his scholarly ambitions, he attended the Burgh School of Kirkcaldy—characterised by Rae as "one of the best secondary schools of Scotland at that period"—from 1729 to 1737, he learned Latin, mathematics and writing. Smith entered the University of Glasgow when he was 14 and studied moral philosophy under Francis Hutcheson. Here, Smith developed his passion for liberty and free speech. In 1740, Smith was the graduate scholar presented to undertake postgraduate studies at Balliol College, under the Snell Exhibition. Smith considered the teaching at Glasgow to be far superior to that at Oxford, which he found intellectually stifling.
In Book V, Chapter II of The Wealth of Nations, Smith wrote: "In the University of Oxford, the greater part of the public professors have, for these many years, given up altogether the pretence of teaching." Smith is reported to have complained to friends that Oxford officials once discovered him reading a copy of David Hume's A Treatise of Human Nature, they subsequently confiscated his book and punished him for reading it. According to William Robert Scott, "The Oxford of time gave little if any help towards what was to be his lifework." Smith took the opportunity while at Oxford to teach himself several subjects by reading many books from the shelves of the large Bodleian Library. When Smith was not studying on his own, his time at Oxford was not a happy one, according to his letters. Near the end of his time there, Smith began suffering from shaking fits the symptoms of a nervous breakdown, he left Oxford University in 1746. In Book V of The Wealth of Nations, Smith comments on the low quality of instruction and the meager intellectual activity at English universities, when compared to their Scottish counterparts.
He attributes this both to the rich endowments of the colleges at Oxford and Cambridge, which made the income of professors independent of their ability to attract students, to the fact that distinguished men of letters could make an more comfortable living as ministers of the Church of England. Smith's discontent at Oxford might be in part due to the absence of his beloved teacher in Glasgow, Francis Hutcheson, well regarded as one of the most prominent lecturers at the University of Glasgow in his day and earned the approbation of students and ordinary residents with the fervor and earnestness of his orations, his lectures endeavoured not to teach philosophy, but to make his students embody that philosophy in their lives, appropriately acquiring the epithet, the preacher of philosophy. Unlike Smith, Hutcheson was not a system builder. Smith began delivering public lectures in 1748 in Edinburgh, sponsored by t
Development economics is a branch of economics which deals with economic aspects of the development process in low income countries. Its focus is not only on methods of promoting economic development, economic growth and structural change but on improving the potential for the mass of the population, for example, through health and workplace conditions, whether through public or private channels. Development economics involves the creation of theories and methods that aid in the determination of policies and practices and can be implemented at either the domestic or international level; this may involve restructuring market incentives or using mathematical methods such as intertemporal optimization for project analysis, or it may involve a mixture of quantitative and qualitative methods. Unlike in many other fields of economics, approaches in development economics may incorporate social and political factors to devise particular plans. Unlike many other fields of economics, there is no consensus on what students should know.
Different approaches may consider the factors that contribute to economic convergence or non-convergence across households and countries. The earliest Western theory of development economics was mercantilism, which developed in the 17th century, paralleling the rise of the nation state. Earlier theories had given little attention to development. For example, the dominant school of thought during medieval feudalism, emphasized reconciliation with Christian theology and ethics, rather than development; the 16th- and 17th-century School of Salamanca, credited as the earliest modern school of economics did not address development specifically. Major European nations in the 17th and 18th century all adopted mercantilist ideals to varying degrees, the influence only ebbing with the 18th-century development of physiocrats in France and classical economics in Britain. Mercantilism held that a nation's prosperity depended on its supply of capital, represented by bullion held by the state, it emphasised the maintenance of a high positive trade balance as a means of accumulating this bullion.
To achieve a positive trade balance, protectionist measures such as tariffs and subsidies to home industries were advocated. Mercantilist development theory advocated colonialism. Theorists most associated with mercantilism include Philipp von Hörnigk, who in his Austria Over All, If She Only Will of 1684 gave the only comprehensive statement of mercantilist theory, emphasizing production and an export-led economy. In France, mercantilist policy is most associated with 17th-century finance minister Jean-Baptiste Colbert, whose policies proved influential in American development. Mercantilist ideas continue in the theories of economic neomercantilism. Following mercantilism was the related theory of economic nationalism, promulgated in the 19th century related to the development and industrialization of the United States and Germany, notably in the policies of the American System in America and the Zollverein in Germany. A significant difference from mercantilism was the de-emphasis on colonies, in favor of a focus on domestic production.
The names most associated with 19th-century economic nationalism are the American Alexander Hamilton, the German-American Friedrich List, the American Henry Clay. Hamilton's 1791 Report on Manufactures, his magnum opus, is the founding text of the American System, drew from the mercantilist economies of Britain under Elizabeth I and France under Colbert. List's 1841 Das Nationale System der Politischen Ökonomie, which emphasized stages of growth, proved influential in the US and Germany, nationalist policies were pursued by politician Henry Clay, by Abraham Lincoln, under the influence of economist Henry Charles Carey. Forms of economic nationalism and neomercantilism have been key in Japan's development in the 19th and 20th centuries, the more recent development of the Four Asian Tigers, most China. Following Brexit and the United States presidential election, 2016, some experts have argued a new kind of "self-seeking capitalism" popularly known as Trumponomics could have a considerable impact on cross-border investment flows and long-term capital allocation The origins of modern development economics are traced to the need for, problems with the industrialization of eastern Europe in the aftermath of World War II.
The key authors are Paul Rosenstein-Rodan, Kurt Mandelbaum, Ragnar Nurkse, Sir Hans Wolfgang Singer. Only after the war did economists turn their concerns towards Asia and Latin America. At the heart of these studies, by authors such as Simon Kuznets and W. Arthur Lewis was an analysis of not only economic growth but structural transformation. An early theory of development economics, the linear-stages-of-growth model was first formulated in the 1950s by W. W. Rostow in The Stages of Growth: A Non-Communist Manifesto, following work of Marx and List; this theory modifies Marx's stages theory of development and focuses on the accelerated accumulation of capital, through the utilization of both domestic and international savings as a means of spurring investment, as the primary means of promoting economic growth and, development. The linear-stages-of-growth model posits that there are a series of five consecutive stages of development which all countries must go through during the process of development.
These stages are "the traditional society, the pre-conditions for take-off, the take-off, the drive to maturity, the age of high mass-consumption" Simple versi
Econometrics is the application of statistical methods to economic data in order to give empirical content to economic relationships. More it is "the quantitative analysis of actual economic phenomena based on the concurrent development of theory and observation, related by appropriate methods of inference". An introductory economics textbook describes econometrics as allowing economists "to sift through mountains of data to extract simple relationships"; the first known use of the term "econometrics" was by Polish economist Paweł Ciompa in 1910. Jan Tinbergen is considered by many to be one of the founding fathers of econometrics. Ragnar Frisch is credited with coining the term in the sense. A basic tool for econometrics is the multiple linear regression model. Econometric theory uses statistical theory and mathematical statistics to evaluate and develop econometric methods. Econometricians try to find estimators that have desirable statistical properties including unbiasedness and consistency.
Applied econometrics uses theoretical econometrics and real-world data for assessing economic theories, developing econometric models, analysing economic history, forecasting. A basic tool for econometrics is the multiple linear regression model. In modern econometrics, other statistical tools are used, but linear regression is still the most used starting point for an analysis. Estimating a linear regression on two variables can be visualised as fitting a line through data points representing paired values of the independent and dependent variables. For example, consider Okun's law, which relates GDP growth to the unemployment rate; this relationship is represented in a linear regression where the change in unemployment rate is a function of an intercept, a given value of GDP growth multiplied by a slope coefficient β 1 and an error term, ε: Δ Unemployment = β 0 + β 1 Growth + ε. The unknown parameters β β 1 can be estimated. Here β 1 is estimated to be −1.77 and β 0 is estimated to be 0.83.
This means that if GDP growth increased by one percentage point, the unemployment rate would be predicted to drop by 1.77 points. The model could be tested for statistical significance as to whether an increase in growth is associated with a decrease in the unemployment, as hypothesized. If the estimate of β 1 were not different from 0, the test would fail to find evidence that changes in the growth rate and unemployment rate were related; the variance in a prediction of the dependent variable as a function of the independent variable is given in polynomial least squares. Econometric theory uses statistical theory and mathematical statistics to evaluate and develop econometric methods. Econometricians try to find estimators that have desirable statistical properties including unbiasedness and consistency. An estimator is unbiased. Ordinary least squares is used for estimation since it provides the BLUE or "best linear unbiased estimator" given the Gauss-Markov assumptions; when these assumptions are violated or other statistical properties are desired, other estimation techniques such as maximum likelihood estimation, generalized method of moments, or generalized least squares are used.
Estimators that incorporate prior beliefs are advocated by those who favour Bayesian statistics over traditional, classical or "frequentist" approaches. Applied econometrics uses theoretical econometrics and real-world data for assessing economic theories, developing econometric models, analysing economic history, forecasting. Econometrics may use standard statistical models to study economic questions, but most they are with observational data, rather than in controlled experiments. In this, the design of observational studies in econometrics is similar to the design of studies in other observational disciplines, such as astronomy, epidemiology and political science. Analysis of data from an observational study is guided by the study protocol, although exploratory data analysis may be useful for generating new hypotheses. Economics analyses systems of equations and inequalities, such as supply and demand hypothesized to be in equilibrium; the field of econometrics has developed methods for identification and estimation of simultaneous-equation models.
These methods are analogous to methods used in other areas of science, such as the field of system identification in systems analysis and control theory. Such methods may allow researchers to estimate models and investigate their empirical consequences, without directly manipulating the system. One of the fundamental statistical methods used by econometricians is regression analysis. Regression methods are important i
François Quesnay was a French economist and physician of the Physiocratic school. He is known for publishing the "Tableau économique" in 1758, which provided the foundations of the ideas of the Physiocrats; this was the first work attempting to describe the workings of the economy in an analytical way, as such can be viewed as one of the first important contributions to economic thought. His Le Despotisme de la Chine, written in 1767, describes Chinese politics and society, his own political support for constitutional Oriental despotism. Quesnay was born at Méré near Versailles, the son of an advocate and small landed proprietor. Apprenticed at the age of sixteen to a surgeon, he soon went to Paris, studied medicine and surgery there, having qualified as a master-surgeon, settled down to practice at Mantes. In 1737 he was appointed perpetual secretary of the academy of surgery founded by François Gigot de la Peyronie, became surgeon in ordinary to King Louis XV. In 1744 he graduated as a doctor of medicine.
His apartments were on the entresol, whence the Réunions de l'entresol received their name. Louis XV esteemed Quesnay and used to call him his thinker; when he ennobled him he gave him for arms three flowers of the pansy, with the Latin motto Propter cogitationem mentis. He now devoted himself principally to economic studies, taking no part in the court intrigues which were perpetually going on around him. Around 1750 he became acquainted with Jacques C. M. V. de Gournay, an earnest inquirer in the economic field. The most remarkable men in this group of disciples were the elder Mirabeau, Nicolas Baudeau, Guillaume-François Le Trosne, André Morellet, Lemercier de La Rivière, du Pont de Nemours. Adam Smith, during his stay on the continent with the young Duke of Buccleuch in 1764–1766, spent some time in Paris, where he made the acquaintance of Quesnay and some of his followers. Quesnay married in 1718, had a son and a daughter, he died on 16 December 1774, having lived long enough to see his great pupil, Anne Robert Jacques Turgot, Baron de Laune, in office as minister of finance.
His economic writings are collected in the 2nd vol. of the Principaux économistes, published by Guillaumin, with preface and notes by Eugène Daire. His other writings were the article "Évidence" in the Encyclopédie, Recherches sur l'évidence des vérites geometriques, with a Projet de nouveaux éléments de géometrie, 1773. Quesnay's Eloge was pronounced in the Academy of Sciences by Grandjean de Fouchy. See F. J. Marmontel, Mémoires. In 1758 he published the Tableau économique, which provided the foundations of the ideas of the Physiocrats; this was the first work to attempt to describe the workings of the economy in an analytical way, as such can be viewed as one of the first important contributions to economic thought. The publications in which Quesnay expounded his system were the following: two articles, on "Fermiers" and on "Grains", in the Encyclopédie of Diderot and Jean le Rond d'Alembert; the Tableau économique, though on account of its dryness and abstract form it met with little general favor, may be considered the principal manifesto of the school.
It was regarded by the followers of Quesnay as entitled to a place amongst the foremost products of human wisdom, is named by the elder Mirabeau, in a passage quoted by Adam Smith, as one of the three great inventions which have contributed most to the stability of political societies, the other two being those of writing and of money. Its object was to exhibit by means of certain formulas the way in which the products of agriculture, the only source of wealth, would in a state of perfect liberty be distributed among the several classes of the community, to represent by other formulas the modes of distribution which take place under systems of Governmental restraint and regulation, with the evil results arising to the whole society from different degrees of such violations of the natural order, it follows from Quesnay's theoretic views that th
Natural resource economics
Natural resource economics deals with the supply and allocation of the Earth's natural resources. One main objective of natural resource economics is to better understand the role of natural resources in the economy in order to develop more sustainable methods of managing those resources to ensure their availability to future generations. Resource economists study interactions between economic and natural systems, with the goal of developing a sustainable and efficient economy. Natural resource economics is a transdisciplinary field of academic research within economics that aims to address the connections and interdependence between human economies and natural ecosystems, its focus is how to operate an economy within the ecological constraints of earth's natural resources. Resource economics brings together and connects different disciplines within the natural and social sciences connected to broad areas of earth science, human economics, natural ecosystems. Economic models must be adapted to accommodate the special features of natural resource inputs.
The traditional curriculum of natural resource economics emphasized fisheries models, forestry models, minerals extraction models. In recent years, other resources, notably air, the global climate, "environmental resources" in general have become important to policy-making. Academic and policy interest has now moved beyond the optimal commercial exploitation of the standard trio of resources to encompass management for other objectives. For example, natural resources more broadly defined have recreational, as well as commercial values, they may contribute to overall social welfare levels, by their mere existence. The economics and policy area focuses on the human aspects of environmental problems. Traditional areas of environmental and natural resource economics include welfare theory, land/location use, pollution control, resource extraction, non-market valuation, resource exhaustibility, environmental management, environmental policy. Research topics could include the environmental impacts of agriculture and urbanization, land use in poor and industrialized countries, international trade and the environment, climate change, methodological advances in non-market valuation, to name just a few.
Hotelling's rule is a 1938 economic model of non-renewable resource management by Harold Hotelling. It shows that efficient exploitation of a nonrenewable and nonaugmentable resource would, under otherwise stable economic conditions, lead to a depletion of the resource; the rule states that this would lead to a net price or "Hotelling rent" for it that rose annually at a rate equal to the rate of interest, reflecting the increasing scarcity of the resource. Nonaugmentable resources of inorganic materials are uncommon. Vogely has stated that the development of a mineral resource occurs in five stages: The current operating margin governed by the proportion of the reserve depleted; the intensive development margin governed by the trade-off between the rising necessary investment and quicker realization of revenue. The extensive development margin in which extraction is begun of known but uneconomic deposits; the exploration margin in which the search for new deposits is conducted and the cost per unit extracted is uncertain with the cost of failure having to be balanced against finding usable resources that have marginal costs of extraction no higher than in the first three stages above.
The technology margin which interacts with the first four stages. The Gray-Hotelling theory is a special case, since it covers only Stages 1–3 and not the far more important Stages 4 and 5. Simon has stated that the supply of natural resources is infinite These conflicting views will be reconciled by considering resource-related topics in depth in the next section, or at least minimized. Furthermore, Hartwick's rule provides insight to the sustainability of welfare in an economy that uses non-renewable resources; the perpetual resource concept is a complex one because the concept of resource is complex and changes with the advent of new technology, new needs, to a lesser degree with new economics. On the one hand, a material can enter a time of shortage and become a strategic and critical material, but on the other hand a material can go out of use, its resource can proceed to being perpetual if it was not before, the resource can become a paleoresource when the material goes completely out of use.
Some of the complexities influencing resources of a material include the extent of recyclability, the availability of suitable substitutes for the material in its end-use products, plus some other less important factors. The Federal Government became compellingly interested in resource issues on December 7, 1941, shortly after which Japan cut the U. S. off from tin and rubber and made some other materials difficult to obtain, such as tungsten. This was the worst case for resource availability, becoming a critical material. After the war a government stockpile of strategic and critical materials was set up, having around 100 different materials which were purchased for cash or obtained by trading off U. S. agricultural commodities for them. In the longer term, scarcity of tin led to comple
Operations research, or operational research in British usage, is a discipline that deals with the application of advanced analytical methods to help make better decisions. Further, the term operational analysis is used in the British military as an intrinsic part of capability development and assurance. In particular, operational analysis forms part of the Combined Operational Effectiveness and Investment Appraisals, which support British defense capability acquisition decision-making, it is considered to be a sub-field of applied mathematics. The terms management science and decision science are sometimes used as synonyms. Employing techniques from other mathematical sciences, such as mathematical modeling, statistical analysis, mathematical optimization, operations research arrives at optimal or near-optimal solutions to complex decision-making problems; because of its emphasis on human-technology interaction and because of its focus on practical applications, operations research has overlap with other disciplines, notably industrial engineering and operations management, draws on psychology and organization science.
Operations research is concerned with determining the extreme values of some real-world objective: the maximum or minimum. Originating in military efforts before World War II, its techniques have grown to concern problems in a variety of industries. Operational research encompasses a wide range of problem-solving techniques and methods applied in the pursuit of improved decision-making and efficiency, such as simulation, mathematical optimization, queueing theory and other stochastic-process models, Markov decision processes, econometric methods, data envelopment analysis, neural networks, expert systems, decision analysis, the analytic hierarchy process. Nearly all of these techniques involve the construction of mathematical models that attempt to describe the system; because of the computational and statistical nature of most of these fields, OR has strong ties to computer science and analytics. Operational researchers faced with a new problem must determine which of these techniques are most appropriate given the nature of the system, the goals for improvement, constraints on time and computing power.
The major sub-disciplines in modern operational research, as identified by the journal Operations Research, are: Computing and information technologies Financial engineering Manufacturing, service sciences, supply chain management Policy modeling and public sector work Revenue management Simulation Stochastic models Transportation In the decades after the two world wars, the tools of operations research were more applied to problems in business and society. Since that time, operational research has expanded into a field used in industries ranging from petrochemicals to airlines, finance and government, moving to a focus on the development of mathematical models that can be used to analyse and optimize complex systems, has become an area of active academic and industrial research. In the 17th century, mathematicians like Christiaan Huygens and Blaise Pascal tried to solve problems involving complex decisions with probability. Others in the 18th and 19th centuries solved these types of problems with combinatorics.
Charles Babbage's research into the cost of transportation and sorting of mail led to England's universal "Penny Post" in 1840, studies into the dynamical behaviour of railway vehicles in defence of the GWR's broad gauge. Beginning in the 20th century, study of inventory management could be considered the origin of modern operations research with economic order quantity developed by Ford W. Harris in 1913. Operational research may have originated in the efforts of military planners during World War I. Percy Bridgman brought operational research to bear on problems in physics in the 1920s and would attempt to extend these to the social sciences. Modern operational research originated at the Bawdsey Research Station in the UK in 1937 and was the result of an initiative of the station's superintendent, A. P. Rowe. Rowe conceived the idea as a means to analyse and improve the working of the UK's early warning radar system, Chain Home, he analysed the operating of the radar equipment and its communication networks, expanding to include the operating personnel's behaviour.
This allowed remedial action to be taken. Scientists in the United Kingdom including Patrick Blackett, Cecil Gordon, Solly Zuckerman, C. H. Waddington, Owen Wansbrough-Jones, Frank Yates, Jacob Bronowski and Freeman Dyson, in the United States with George Dantzig looked for ways to make better decisions in such areas as logistics and training schedules The modern field of operational research arose during World War II. In the World War II era, operational research was defined as "a scientific method of providing executive departments with a quantitative basis for decisions regarding the operations under their control". Other names for it included quantitative management. During the Second World War close to 1,000 men and women in Britain were engaged in operational research. About 200 operational research scientists worked for the British Army. Patrick Blackett worked for several different organizations during the war. Early in the war while working for the Royal Aircraft Establishment he set up a team known as the "Circus" which helped to reduce the number of anti-aircraft artillery rounds needed to shoot down an enemy aircraft from an