1.
History of economic thought
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The history of economic thought deals with different thinkers and theories in the subject that became political economy and economics, from the ancient world to the present day. It encompasses many disparate schools of economic thought, ancient Greek writers such as the philosopher Aristotle examined ideas about the art of wealth acquisition, and questioned whether property is best left in private or public hands. In the Middle Ages, scholasticists such as Thomas Aquinas argued that it was an obligation of businesses to sell goods at a just price. Fan Li, an adviser to King Goujian of Yue, wrote on economic issues, chanakya wrote the Arthashastra, a treatise on statecraft, economic policy and military strategy. Ancient Athens, a society, developed an embryonic model of democracy. Xenophons Oeconomicus is a dialogue principally about household management and agriculture, Platos dialogue The Republic describing an ideal city-state run by philosopher-kings contained references to specialization of labor and to production. Plato was the first to advocate the theory of money. Aristotles Politics analyzed different forms of the state as a critique of Platos model of a philosopher-kings, of particular interest for economists, Plato provided a blueprint of a society based on common ownership of resources. Aristotle viewed this model as an oligarchical anathema, though Aristotle did certainly advocate holding many things in common, he argued that not everything could be, simply because of the wickedness of human nature. It is clearly better that property should be private, wrote Aristotle, but the use of it common, in Politics Book I, Aristotle discusses the general nature of households and market exchanges. Aristotle himself highly disapproved of usury and cast scorn on making money through a monopoly, not useful as a means to any of the necessities of life. Thomas Aquinas was an Italian theologian and economic writer and he taught in both Cologne and Paris, and was part of a group of Catholic scholars known as the Schoolmen, who moved their enquiries beyond theology to philosophical and scientific debates. In the treatise Summa Theologica Aquinas dealt with the concept of a just price, similar in many ways to the modern concept of long run equilibrium, a just price was just sufficient to cover the costs of production, including the maintenance of a worker and his family. Aquinas argued it was immoral for sellers to raise their prices simply because buyers had a pressing need for a product, Aquinas discusses a number of topics in the format of questions and replies, substantial tracts dealing with Aristotles theory. Questions 77 and 78 concern economic issues, primarily what a just price might be, Aquinas argued against any form of cheating and recommended always paying compensation in lieu of good service. Whilst human laws might not impose sanctions for unfair dealing, divine law did, one of Aquinas main critics was Duns Scotus, originally from Duns Scotland, who taught in Oxford, Cologne, and Paris. If people did not benefit from a transaction, in Scotus view, Scotus said merchants perform a necessary and useful social role by transporting goods and making them available to the public. Jean Buridan was a French priest, buridanus looked at money from two angles, its metal value and its purchasing power, which he acknowledged can vary
2.
Economics
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Economics is a social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services according to the Merriam-Webster Dictionary. Economics focuses on the behaviour and interactions of economic agents and how economies work, consistent with this focus, textbooks often distinguish between microeconomics and macroeconomics. Microeconomics examines the behaviour of elements in the economy, including individual agents and markets, their interactions. Individual agents may include, for example, households, firms, buyers, macroeconomics analyzes the entire economy and issues affecting it, including unemployment of resources, inflation, economic growth, and the public policies that address these issues. Economic analysis can be applied throughout society, as in business, finance, health care, Economic analyses may also be applied to such diverse subjects as crime, education, the family, law, politics, religion, social institutions, war, science, and the environment. At the turn of the 21st century, the domain of economics in the social sciences has been described as economic imperialism. The ultimate goal of economics is to improve the conditions of people in their everyday life. There are a variety of definitions of economics. Some of the differences may reflect evolving views of the subject or different views among economists, to supply the state or commonwealth with a revenue for the publick services. Say, distinguishing the subject from its uses, defines it as the science of production, distribution. On the satirical side, Thomas Carlyle coined the dismal science as an epithet for classical economics, in this context and it enquires how he gets his income and how he uses it. Thus, it is on the one side, the study of wealth and on the other and more important side, a part of the study of man. He affirmed that previous economists have usually centred their studies on the analysis of wealth, how wealth is created, distributed, and consumed, but he said that economics can be used to study other things, such as war, that are outside its usual focus. This is because war has as the goal winning it, generates both cost and benefits, and, resources are used to attain the goal. If the war is not winnable or if the costs outweigh the benefits. Some subsequent comments criticized the definition as overly broad in failing to limit its subject matter to analysis of markets, there are other criticisms as well, such as in scarcity not accounting for the macroeconomics of high unemployment. The same source reviews a range of included in principles of economics textbooks. Among economists more generally, it argues that a particular definition presented may reflect the direction toward which the author believes economics is evolving, microeconomics examines how entities, forming a market structure, interact within a market to create a market system
3.
Market (economics)
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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 and 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 allocation of resources 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, Markets can also be worldwide, for example the global diamond trade. National economies can be classified, for example as developed markets or developing markets, in mainstream economics, the concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information. The exchange of goods or services, with or without money, is a transaction, a major topic of debate is how much a given market can be considered to be a free market, that is free from government intervention. However it is not always clear how the allocation of resources can be improved since there is always the possibility of government failure, 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 and it can be said that a market is the process by which the prices of goods and services are established. Markets facilitate trade and enables the distribution and allocation of resources in a society, Markets allow any trade-able item to be evaluated and priced. A market sometimes emerges more or less spontaneously but is often constructed deliberately by human interaction in order to enable the exchange of rights of services. Markets of varying types can spontaneously arise whenever a party has interest in a good or service that other party can provide. Hence there can be a market for cigarettes in correctional facilities, another for chewing gum in a playground, and yet another for contracts for the future delivery of a commodity. Markets vary in form, scale, location, and types of participants, as well as the types of goods and services traded, nevertheless, violence and they apply the market dynamics to facilitate information aggregation. However, market prices may be distorted by a seller or sellers with monopoly power, such price distortions can have an adverse effect on market participants welfare and reduce the efficiency of market outcomes. Also, the level of organization and negotiating power of buyers and sellers markedly affects the functioning of the market. Markets are a system, and systems have structure, the structure of a well-functioning market is defined by the theory of perfect competition. Market failures are often associated with time-inconsistent preferences, information asymmetries, non-perfectly competitive markets, principal–agent problems, externalities, among the major negative externalities which can occur as a side effect of production and market exchange, are air pollution and environmental degradation. There exists a popular thought, especially among economists, that markets would have a structure of a perfect competition
4.
Ecological economics
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Ecological economics was founded in the 1980s as a modern discipline in the works of and interactions between various European and American academics. The related field of economics is, in general, a more politically applied form of the subject. According to ecological economist Malte Faber, ecological economics is defined by its focus on nature, justice, issues of intergenerational equity, irreversibility of environmental change, uncertainty of long-term outcomes, and sustainable development guide ecological economic analysis and valuation. Positional analysis, which attempts to time and justice issues, is proposed as an alternative. Ecological economics shares many of its perspectives with feminist economics, including the focus on sustainability, nature, justice, the first principles, deriving from the radiochemist FA Soddy, were laid out in his 1926 book Wealth, Money and Debt in 1926. Early modern interest in ecology and economics dates back to the 1940s in the work of K. William Kapp and Karl Polanyi, however, the first organized meetings of modern ecological economists occurred in the 1980s. These began in 1982, at the instigation of Lois Banner, most were ecosystem ecologists or mainstream environmental economists, with the exception of Daly. In 1987, Daly and Costanza edited an issue of Ecological Modeling to test the waters, a book entitled Ecological Economics, by Juan Martinez-Alier, was published later that year. 1989 saw the foundation of the International Society for Ecological Economics and publication of its journal, Ecological Economics, Robert Costanza was the first president of the society and first editor of the journal, currently edited by Richard Howarth. European conceptual founders include Nicholas Georgescu-Roegen, K. William Kapp, some key concepts of what is now ecological economics are evident in the writings of E. F. Other figures include ecologists C. S. Holling, H. T, odum and Robert Costanza, biologist Gretchen Daily and physicist Robert Ayres. CUNY geography professor David Harvey explicitly added ecological concerns to political economic literature and this parallel development in political economy has been continued by analysts such as sociologist John Bellamy Foster. The antecedents can be traced back to the Romantics of the 19th century as well as some Enlightenment political economists of that era, concerns over population were expressed by Thomas Malthus, while John Stuart Mill predicted the desirability of the stationary state of an economy. Mill thereby anticipated later insights of modern ecological economists, but without having had their experience of the social and ecological costs of the Post–World War II economic expansion. As Martinez-Alier explores in his book the debate on energy in systems can also be traced into the 19th century e. g. Nobel prize-winning chemist. His magnum opus, The Entropy Law and the Economic Process, has been highly influential, in addition, the journal Ecological Economics has itself been criticized for swamping the field with mainstream economics. Once consumed, natural inputs pass out of the economy as pollution, the sink function describes an environments ability to absorb and render harmless waste and pollution, when waste output exceeds the limit of the sink function, long-term damage occurs. Some persistent pollutants, such as organic pollutants and nuclear waste are absorbed very slowly or not at all
5.
Labour economics
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Labour economics seeks to understand the functioning and dynamics of the markets for wage labour. Labour markets or job markets function through the interaction of workers and employers, Labour economics looks at the suppliers of labour services and the demanders of labour services, and attempts to understand the resulting pattern of wages, employment, and income. In economics, labour is a measure of the work done by human beings and it is conventionally contrasted with such other factors of production as land and capital. There are theories which have developed a concept called human capital, there are two sides to labour economics. Labour economics can generally be seen as the application of microeconomic or macroeconomic techniques to the labour market, microeconomic techniques study the role of individuals and individual firms in the labour market. Macroeconomic techniques look at the interrelations between the market, the goods market, the money market, and the foreign trade market. It looks at how these interactions influence macro variables such as employment levels, participation rates, aggregate income, the labour force is defined as the number of people of working age, who are either employed or actively looking for work. The participation rate is the number of people in the force divided by the size of the adult civilian noninstitutional population. The unemployment level is defined as the labour force minus the number of people currently employed, the unemployment rate is defined as the level of unemployment divided by the labour force. The employment rate is defined as the number of people currently employed divided by the adult population, in these statistics, self-employed people are counted as employed. Variables like employment level, unemployment level, labour force, and they can be contrasted with flow variables which measure a quantity over a duration of time. Changes in the force are due to flow variables such as natural population growth, net immigration, new entrants. Technological advancement often reduces frictional unemployment, for example, internet search engines have reduced the cost, structural unemployment – This reflects a mismatch between the skills and other attributes of the labour force and those demanded by employers. The process of globalization has contributed to changes in labour markets. Natural rate of unemployment – This is the summation of frictional and structural unemployment and it is the lowest rate of unemployment that a stable economy can expect to achieve, given that some frictional and structural unemployment is inevitable. Economists do not agree on the level of the rate, with estimates ranging from 1% to 5%. The estimated rate varies from country to country and from time to time, demand deficient unemployment – In Keynesian economics, any level of unemployment beyond the natural rate is probably due to insufficient goods demand in the overall economy. During a recession, aggregate expenditure is deficient causing the underutilisation of inputs, neoclassical economists view the labour market as similar to other markets in that the forces of supply and demand jointly determine price and quantity
6.
Financial economics
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Financial economics is the branch of economics characterized by a concentration on monetary activities, in which money of one type or another is likely to appear on both sides of a trade. Its concern is thus the interrelation of financial variables, such as prices, interest rates and shares and it has two main areas of focus, asset pricing and corporate finance, the first being the perspective of providers of capital and the second of users of capital. The subject is concerned with the allocation and deployment of economic resources and it is built on the foundations of microeconomics and decision theory. Financial econometrics is the branch of economics that uses econometric techniques to parameterise these relationships. Mathematical finance is related in that it will derive and extend the mathematical or numerical models suggested by financial economics, note though that the emphasis there is mathematical consistency, as opposed to compatibility with economic theory. Financial economics is usually taught at the level, see Master of Financial Economics. Recently, specialist undergraduate degrees are offered in the discipline, note that this article provides an overview and survey of the field, for derivations and more technical discussion, see the specific articles linked. As above, the discipline essentially explores how rational investors would apply decision theory to the problem of investment, the subject is thus built on the foundations of microeconomics and decision theory, and derives several key results for the application of decision making under uncertainty to the financial markets. Underlying all of economics are the concepts of present value. Its history is correspondingly early, Richard Witt discusses compound interest already in 1613, in his book Arithmeticall Questions, further developed by Johan de Witt and these ideas originate with Blaise Pascal and Pierre de Fermat. This decision method, however, fails to consider risk aversion, choice under uncertainty here, may then be characterized as the maximization of expected utility. The impetus for these ideas arise from various inconsistencies observed under the expected value framework, the development here originally due to Daniel Bernoulli, and later formalized by John von Neumann and Oskar Morgenstern. The concepts of arbitrage-free, rational, pricing and equilibrium are then coupled with the above to derive classical financial economics, Rational pricing is the assumption that asset prices will reflect the arbitrage-free price of the asset, as any deviation from this price will be arbitraged away. This assumption is useful in pricing fixed income securities, particularly bonds, intuitively, this may be seen by considering that where an arbitrage opportunity does exist, then prices can be expected to change, and are therefore not in equilibrium. An arbitrage equilibrium is thus a precondition for a general economic equilibrium, the formal derivation will proceed by arbitrage arguments. All pricing models are then essentially variants of this, given specific assumptions and/or conditions and this approach is consistent with the above, but with the expectation based on the market as opposed to individual preferences. In general, this premium may be derived by the CAPM as will be seen under #Uncertainty, with the above relationship established, the further specialized Arrow–Debreu model may be derived. This important result suggests that, under certain conditions, there must be a set of prices such that aggregate supplies will equal aggregate demands for every commodity in the economy
7.
Institutional economics
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Institutional economics focuses on understanding the role of the evolutionary process and the role of institutions in shaping economic behaviour. Its original focus lay in Thorstein Veblens instinct-oriented dichotomy between technology on the one side and the sphere of society on the other. Its name and core elements trace back to a 1919 American Economic Review article by Walton H. Hamilton, Institutional economics emphasizes a broader study of institutions and views markets as a result of the complex interaction of these various institutions. The earlier tradition continues today as a leading heterodox approach to economics, a significant variant is the new institutional economics from the later 20th century, which integrates later developments of neoclassical economics into the analysis. Law and economics has been a theme since the publication of the Legal Foundations of Capitalism by John R. Commons in 1924. Since then, there is heated debate on the role of law on economic growth, Behavioral economics is another hallmark of institutional economics based on what is known about psychology and cognitive science, rather than simple assumptions of economic behavior. Institutional economics focuses on learning, bounded rationality, and evolution and it was a central part of American economics in the first part of the 20th century, including such famous but diverse economists as Thorstein Veblen, Wesley Mitchell, and John R. Commons. Traditional institutionalism rejects the reduction of institutions to simply tastes, technology, tastes, along with expectations of the future, habits, and motivations, not only determine the nature of institutions but are limited and shaped by them. If people live and work in institutions on a regular basis, some of the authors associated with this school include Robert H. Wright Mills was highly influenced by the institutionalist approach in his major studies. Thorstein Veblen wrote his first and most influential book while he was at the University of Chicago, in it he analyzed the motivation in capitalism to conspicuously consume their riches as a way of demonstrating success. Conspicuous leisure was another focus of Veblens critique, the concept of conspicuous consumption was in direct contradiction to the neoclassical view that capitalism was efficient. Output and technological advance are restricted by business practices and the creation of monopolies, businesses protect their existing capital investments and employ excessive credit, leading to depressions and increasing military expenditure and war through business control of political power. These two books, focusing on criticism first of consumerism, and second of profiteering, did not advocate change, Veblen remains a leading critic, which cautions against the excesses of the American way. Thorstein Veblen wrote in 1898 an article entitled Why is Economics Not an Evolutionary Science, John R. Commons also came from mid-Western America. Underlying his ideas, consolidated in Institutional Economics was the concept that the economy is a web of relationships between people with diverging interests, there are monopolies, large corporations, labour disputes and fluctuating business cycles. They do however have an interest in resolving these disputes, Commons thought that government should be the mediator between the conflicting groups. Commons himself devoted much of his time to advisory and mediation work on government boards, Wesley Clair Mitchell was an American economist known for his empirical work on business cycles and for guiding the National Bureau of Economic Research in its first decades. Mitchell’s teachers included economists Thorstein Veblen and J. L. Laughlin, clarence Ayres was the principal thinker of what some has called the Texas school of institutional economics
8.
Economic growth
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Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in gross domestic product, or real GDP. Growth is usually calculated in real terms – i. e. inflation-adjusted terms – to eliminate the effect of inflation on the price of goods produced. Measurement of economic growth uses national income accounting, since economic growth is measured as the annual percent change of gross domestic product, it has all the advantages and drawbacks of that measure. The rate of economic growth refers to the annual rate of growth in GDP between the first and the last year over a period of time. Implicitly, this rate is the trend in the average level of GDP over the period. An increase in economic growth caused by efficient use of inputs is referred to as intensive growth. GDP growth caused only by increases in the amount of available for use is called extensive growth. The economic growth rate is calculated from data on GDP estimated by countries´statistical agencies, the rate of growth of GDP/capita is calculated from data on GDP and people for the initial and final periods included in the analysis. The rate of change of GDP/population is the sum of the rates of change of four variables plus their cross products. Increases in labor productivity have historically been the most important source of real per capita economic growth, increases in productivity lower the real cost of goods. Over the 20th century the price of many goods fell by over 90%. Economic growth has traditionally been attributed to the accumulation of human and physical capital, the rapid economic growth that occurred during the Industrial Revolution was remarkable because it was in excess of population growth, providing an escape from the Malthusian trap. Countries that industrialized eventually saw their population growth slow down, a known as the demographic transition. Increases in productivity are the factor responsible for per capita economic growth – this has been especially evident since the mid-19th century. Most of the growth in the 20th century was due to increased output per unit of labor, materials, energy. The balance of the growth in output has come from using more inputs, both of these changes increase output. The increased output included more of the goods produced previously and new goods
9.
Operations research
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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 operational analysis is used in the British military, as an intrinsic part of capability development, management. In particular, operational analysis forms part of the Combined Operational Effectiveness and Investment Appraisals and it is often considered to be a sub-field of applied mathematics. The terms management science and decision science are used as synonyms. Operation research is concerned with determining the maximum or minimum of some real-world objective. Originating in military efforts before World War II, its techniques have grown to concern problems in a variety of industries, 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 also has ties to computer science. In the decades after the two wars, the techniques were more widely applied to problems in business, industry. Early work in research was carried out by individuals such as Charles Babbage. Percy Bridgman brought operational research to bear on problems in physics in the 1920s, modern operational research originated at the Bawdsey Research Station in the UK in 1937 and was the result of an initiative of the stations superintendent, A. P. Rowe. Rowe conceived the idea as a means to analyse and improve the working of the UKs early warning radar system, initially, he analysed the operating of the radar equipment and its communication networks, expanding later to include the operating personnels behaviour. This revealed unappreciated limitations of the CH network and allowed action to be taken. Scientists in the United Kingdom including Patrick Blackett, Cecil Gordon, Solly Zuckerman, other names for it included operational analysis and 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 different organizations during the war. In 1941, Blackett moved from the RAE to the Navy, after first working with RAF Coastal Command, in 1941, blacketts team at Coastal Commands Operational Research Section included two future Nobel prize winners and many other people who went on to be pre-eminent in their fields. They undertook a number of analyses that aided the war effort. Convoys travel at the speed of the slowest member, so small convoys can travel faster and it was also argued that small convoys would be harder for German U-boats to detect
10.
Bretton Woods system
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The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent nation-states. Also, there was a need to address the lack of cooperation among other countries, the delegates deliberated during 1–22 July 1944, and signed the Bretton Woods agreement on its final day. The United States, which controlled two thirds of the gold, insisted that the Bretton Woods system rest on both gold and the US dollar. Soviet representatives attended the conference but later declined to ratify the final agreements and these organizations became operational in 1945 after a sufficient number of countries had ratified the agreement. On 15 August 1971, the United States unilaterally terminated convertibility of the US dollar to gold, effectively bringing the Bretton Woods system to an end and rendering the dollar a fiat currency. This action, referred to as the Nixon shock, created the situation in which the US dollar became a currency used by many states. At the same time, many fixed currencies also became free-floating, there was a high level of agreement among the powerful nations that failure to coordinate exchange rates during the interwar period had exacerbated political tensions. This facilitated the decisions reached by the Bretton Woods Conference, furthermore, all the participating governments at Bretton Woods agreed that the monetary chaos of the interwar period had yielded several valuable lessons. The experience of World War II was fresh in the minds of public officials, the planners at Bretton Woods hoped to avoid a repeat of the Treaty of Versailles after World War I, which had created enough economic and political tension to lead to WWII. The solution at Versailles for the French, British, and Americans seemed to be make Germany pay for it all, if the demands on Germany were unrealistic, then it was unrealistic for France to pay back Britain, and for Britain to pay back the US. Thus, many assets on bank balance sheets internationally were actually unrecoverable loans, in the 1920s, international flows of speculative financial capital increased, leading to extremes in balance of payments situations in various European countries and the US. In the 1930s, world markets never broke through the barriers and restrictions on trade and investment volume – barriers haphazardly constructed. The lesson was that simply having responsible, hard-working central bankers was not enough, Britain in the 1930s had an exclusionary trading bloc with nations of the British Empire known as the Sterling Area. If Britain imported more than it exported to, say, South Africa and this meant that though Britain was running a trade deficit, it had a financial account surplus, and payments balanced. Increasingly, Britains positive balance of payments required keeping the wealth of Empire nations in British banks, one incentive for, say, South African holders of rand to park their wealth in London and to keep the money in Sterling, was a strongly valued pound sterling. Unfortunately, as Britain deindustrialized in the 1920s, the way out of the deficit was to devalue the currency. But Britain couldnt devalue, or the Empire surplus would leave its banking system, nazi Germany also worked with a bloc of controlled nations by 1940. Germany forced trading partners with a surplus to spend that surplus importing products from Germany, thus, Britain survived by keeping Sterling nation surpluses in its banking system, and Germany survived by forcing trading partners to purchase its own products
