Economics

more_vert

History of Economics

Economic thought may be roughly divided into three phases:

  • Pre-Modern Phase of Greek and Roman thinkers & economists
  • Early Modern Phase of Mercantilism and Physiocrats
  • Modern Phase (Adam Smith onwards)

Pre-Modern Phase:           

The first attempts to analyse economic problems appear in the writings of the ancient Greeks. Greek writers and philosophers such as Aristotle examined ideas about the "art" of wealth acquisition and recognised the importance of economic security as the basis for social and political health of a society. Plato documented the economic basis of society and organized a model society on the basis of a careful division of labour. Roman writers such as Cicero, Vergil, and Varro gave considerable advice about the economics of agriculture. was marked by the disruption of the flourishing commerce of the ancient world, and its economic life was dominated by feudalism. Economic writings of the medieval period focused on the argument that it was a moral obligation of businesses to sell goods at a just price.

Early Modern Phase (Mercantilism and the Physiocrats):

Mercantilism was an economic system followed in 18th century Europe which advocated government regulation in the economy matters and interests to increase a nation's wealth.

The Physiocrats began protesting against government regulation in the economic policies of the state and advocated laissez-faire, arguing that business should follow the natural laws of economics freely, without any government interference.                 They considered agriculture as the only productive economic activity.

Modern Phase (Adam Smith onwards):

British philosopher Adam Smith is often cited as the father of modern economics for his treatise The Wealth of Nations (1776) which is considered to be the first complete treatise on economics. His book appeared just preceding the Industrial Revolution and is thus associated with major changes in the economy. Smith contributed a lot to establish economics as a major area of study after having recognised self-interest as the basic economic force in any society and also through his analysis of the division of labour and his complete study of the development of economic institutions in the West.

Another distinguished economist to follow Adam Smith was David Ricardo. Ricardo's famous ‘The Iron Law of Wages’, asserts that real wages always tend toward the minimum wage necessary to sustain the life of the worker. It states that the minimum wages cannot fall below subsistence level because without subsistence, labourers will be unable to work or even live. John Stuart Mill was a follower of Ricardo and contributed to the study of international trade and economics of industrial expansion. Thomas Malthus was one of the most influential writers of the 19th century, who predicted that population growth would always exceed economic advances in the means of subsistence.

The term "economics" replaced the term "political economy," which had been used up to the mid-19th century The most important development and modification took place with the doctrine of marginal utility, which asserts that the value of an item is determined by the need for it and by its relative scarcity or abundance at any given time. The leading theorists in the development of the marginal utility concept were William Stanley Jevons of Britain, Leon Walras of France, and Carl Menger of Austria. Classical economics reached its peak in the works of Alfred Marshall close to the end of the 19th century. Marshall used mathematics to master the application of classical techniques in economic theory and introduced important modifications to the concepts of competition, marginal utility, and rent.

In his General Theory of Employment, Interest, and Money (1936), Keynes opened up a whole new arena of analysis of business cycles. The most influential effect of Keynes' theory was reflected in governmental attempts to control the business cycle by putting money directly into the economy to revive the economic condition known as the ‘pump-priming’ technique, which is usually accompanied by an unbalanced budget.

After World War II, greater emphasis was placed on the analysis of economic growth and development. Gunnar Myrdal of Sweden, Sir Arthur Lewis of Great Britain, and Joseph Schumpeter of the United States are the main western economists notable for their contributions to the economics of growth and development include

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. British economist Arthur Pigou was prominent in the development of welfare economics, a branch of economics that evaluate economic policies in terms of their effects on the total well-being of the entire community.

During the mid of 20th century, Keynesian economics advocated a mixed economy which was predominantly private sector, but with a large role of government and public sector and it served as the economic model during the latter part of the Great Depression and up to as late as 1970s. But as Keynesian policies seemed to lose their hold in the 1970s, there emerged the so called New Classical school, with prominent theorists such as Robert Lucas and Edward Prescott. New challenges were posed to governmental economic policies from the 1980s and development economists like Amartya Sen and information economists like Joseph Stiglitz introduced new ideas to economic thought in the twenty-first century.