From the History of Economics

Economics is a social science studying economy. Why do we study economics? In fact, people do it for countless reasons. For many people concern for the economy goes no further than the price of tuition or fear of losing a job. Many others, however, are becoming aware that their job prospects and the prices they pay are somehow related to national trends in prices, unemployment, and economic growth. Although few people think in terms of price indexes and graphs, most of us now recognize the importance of major economic events. And that’s why so many people worry about such abstractions as unemployment rate, inflation, economic growth, etc.

As a scholarly discipline, economics is two centuries old. The first scientist who made extraordinary contribution in economics was Adam Smith. He was born in a small fishing town near Edinburgh, Scotland. At the age of 28 Adam Smith became Professor of Logic at the University of Glasgow. Some time later he became a tutor to a wealthy Scottish duke. Then he received a grant and with the financial security of this grant, Smith devoted 10 years to writing his work “The Wealth of Nations” which founded economic science. It was published in 1776. His contribution was to analize the way that markets organized economic life and produce rapid economic growth. He showed that a system of prices and markets is able to coordinate people and business without any central direction. Almost a century later, as capitalist enterprises began to spread, there appeared the massive critique of capitalism: Karl Marx’s “Capital”. Marx proclaimed that capitalism was doomed and would soon be followed by business depression, revolutionary upheavals and socialism.

In 1936 John Maynard Keynes published “The General Theory of Employment, Interest and Money”. Economics was supposed to help government monetary and fiscal policies to tame the worst ravages of business cycles. Later in the 80s and 90s the fundamental insights of A. Smith were discovered again.

What exactly is the subject that economists from Smith to Marx to the present generation have analyzed?

Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people.

No brief description can offer clean guidance to the content and character of economics but numerous writers have attempted that. A notable economist of the last century Alfred Marshall called economics “a study of mankind in the ordinary business of life”. Another notable economist Lionel Robbins, in 1930s, described economics as “the science of choice among scarce means to accomplish unlimited ends”. During much of modern history, especially in the nineteenth century, economics was called simply “the science of wealth”.

The scope of economics is indicated by the facts with which it deals. These consist mainly of data on output, income, employment, expenditure, interest rates, prices and related magnitudes associated with individual activities of production, transportation and trade.

There are four major economic goals that are generally accepted. These goals are:

full employment;

price stability;

economic growth;

an equitable distribution of income.

In each case, the goal itself is formulated through the political process. The economist’s job is to help design policies that will allocate the economy’s resources in ways that best achieve these goals.