![Countries by GDP (PPP) per capita in 2020](https://upload.wikimedia.org/wikipedia/commons/8/8a/Countries_by_GDP_%28PPP%29_per_capita_in_2020.png)
An economy is an area of the
production
Production may refer to:
Economics and business
* Production (economics)
* Production, the act of manufacturing goods
* Production, in the outline of industrial organization, the act of making products (goods and services)
* Production as a stati ...
,
distribution Distribution may refer to:
Mathematics
*Distribution (mathematics), generalized functions used to formulate solutions of partial differential equations
* Probability distribution, the probability of a particular value or value range of a vari ...
and
trade
Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market.
An early form of trade, barter, saw the direct excha ...
, as well as
consumption
Consumption may refer to:
*Resource consumption
*Tuberculosis, an infectious disease, historically
* Consumption (ecology), receipt of energy by consuming other organisms
* Consumption (economics), the purchasing of newly produced goods for curren ...
of
goods
In economics, goods are items that satisfy human wants
and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not tran ...
and
services
Service may refer to:
Activities
* Administrative service, a required part of the workload of university faculty
* Civil service, the body of employees of a government
* Community service, volunteer service for the benefit of a community or a p ...
. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the production, use, and management of
scarce resources'. A given economy is a set of processes that involves its
culture
Culture () is an umbrella term which encompasses the social behavior, institutions, and norms found in human societies, as well as the knowledge, beliefs, arts, laws, customs, capabilities, and habits of the individuals in these groups.Tyl ...
,
values
In ethics and social sciences, value denotes the degree of importance of something or action, with the aim of determining which actions are best to do or what way is best to live (normative ethics in ethics), or to describe the significance of dif ...
, education, technological evolution, history,
social organization
In sociology, a social organization is a pattern of relationships between and among individuals and social groups.
Characteristics of social organization can include qualities such as sexual composition, spatiotemporal cohesion, leadership, s ...
,
political structure Political structure is a commonly used term in political science. In a general sense, it refers to institutions or even groups and their relations to each other, their patterns of interaction within political systems and to political regulations, l ...
,
legal systems
The contemporary national legal systems are generally based on one of four basic systems: civil law, common law, statutory law, religious law or combinations of these. However, the legal system of each country is shaped by its unique history and ...
, and
natural resource
Natural resources are resources that are drawn from nature and used with few modifications. This includes the sources of valued characteristics such as commercial and industrial use, aesthetic value, scientific interest and cultural value. O ...
s as main factors. These factors give context, content, and set the conditions and parameters in which an economy functions. In other words, the economic domain is a social domain of interrelated human practices and transactions that does not stand alone.
Economic agents can be individuals,
business
Business is the practice of making one's living or making money by producing or Trade, buying and selling Product (business), products (such as goods and Service (economics), services). It is also "any activity or enterprise entered into for pr ...
es,
organization
An organization or organisation (Commonwealth English; see spelling differences), is an entity—such as a company, an institution, or an association—comprising one or more people and having a particular purpose.
The word is derived from ...
s, or
government
A government is the system or group of people governing an organized community, generally a state.
In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government is a ...
s. Economic transactions occur when two groups or parties agree to the value or price of the transacted good or service, commonly expressed in a certain
currency
A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins.
A more general def ...
. However, monetary transactions only account for a small part of the economic domain.
Economic activity is spurred by production which uses natural resources, labor and capital. It has changed over time due to
technology
Technology is the application of knowledge to reach practical goals in a specifiable and reproducible way. The word ''technology'' may also mean the product of such an endeavor. The use of technology is widely prevalent in medicine, science, ...
,
innovation
Innovation is the practical implementation of ideas that result in the introduction of new goods or services or improvement in offering goods or services. ISO TC 279 in the standard ISO 56000:2020 defines innovation as "a new or changed entity ...
(new products, services, processes, expanding markets, diversification of markets, niche markets, increases revenue functions) such as, that which produces intellectual property and changes in
industrial relations
Industrial relations or employment relations is the multidisciplinary academic field that studies the employment relationship; that is, the complex interrelations between employers and employees, labor/trade
unions, employer organizations, ...
(most notably
child labor
Child labour refers to the exploitation of children through any form of work that deprives children of their childhood, interferes with their ability to attend regular school, and is mentally, physically, socially and morally harmful. Such e ...
being replaced in some parts of the world with
universal access to education
Universal access to education is the ability of all people to have equal opportunity in education, regardless of their social class, race, gender, sexuality, ethnic background or physical and mental disabilities. The term is used both in colle ...
).
Etymology
The word ''economy'' in English is derived from the
Middle French
Middle French (french: moyen français) is a historical division of the French language that covers the period from the 14th to the 16th century. It is a period of transition during which:
* the French language became clearly distinguished from t ...
's , which itself derived from the
Medieval Latin
Medieval Latin was the form of Literary Latin used in Roman Catholic Western Europe during the Middle Ages. In this region it served as the primary written language, though local languages were also written to varying degrees. Latin functioned ...
's . The Latin word has its origin at the
Ancient Greek
Ancient Greek includes the forms of the Greek language used in ancient Greece and the ancient world from around 1500 BC to 300 BC. It is often roughly divided into the following periods: Mycenaean Greek (), Dark Ages (), the Archaic peri ...
's ''oikonomia'' or ''oikonomos''. The word's first part ''oikos'' means "house", and the second part ''nemein'' means "to manage".
The most frequently used current sense, denoting "the economic system of a country or an area", seems not to have developed until the 1650s.
History
Earliest roots
![BosraMosaicCamels](https://upload.wikimedia.org/wikipedia/commons/1/1c/BosraMosaicCamels.png)
As long as someone has been making, supplying and distributing goods or services, there has been some sort of economy; economies grew larger as societies grew and became more complex.
Sumer
Sumer () is the earliest known civilization in the historical region of southern Mesopotamia (south-central Iraq), emerging during the Chalcolithic and early Bronze Ages between the sixth and fifth millennium BC. It is one of the cradles of c ...
developed a large-scale economy based on
commodity money
Commodity money is money whose value comes from a commodity of which it is made. Commodity money consists of objects having value or use in themselves (intrinsic value) as well as their value in buying goods.
This is in contrast to representati ...
, while the
Babylonians
Babylonia (; Akkadian: , ''māt Akkadī'') was an ancient Akkadian-speaking state and cultural area based in the city of Babylon in central-southern Mesopotamia (present-day Iraq and parts of Syria). It emerged as an Amorite-ruled state c. ...
and their neighboring
city states
A city-state is an independent sovereign city which serves as the center of political, economic, and cultural life over its contiguous territory. They have existed in many parts of the world since the dawn of history, including cities such as ...
later developed the earliest system of
economics
Economics () is the social science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services.
Economics focuses on the behaviour and intera ...
as we think of, in terms of rules/laws on
debt
Debt is an obligation that requires one party, the debtor, to pay money or other agreed-upon value to another party, the creditor. Debt is a deferred payment, or series of payments, which differentiates it from an immediate purchase. The ...
, legal contracts and law codes relating to business practices, and private property.
[Sheila C. Dow (2005), "Axioms and Babylonian thought: a reply", ''Journal of Post Keynesian Economics'' 27 (3), p. 385-391.]
The Babylonians and their city state neighbors developed forms of economics comparable to currently used civil society (law) concepts. They developed the first known codified legal and administrative systems, complete with courts, jails, and government records.
The ancient economy was mainly based on
subsistence farming
Subsistence agriculture occurs when farmers grow food crops to meet the needs of themselves and their families on smallholdings. Subsistence agriculturalists target farm output for survival and for mostly local requirements, with little or no su ...
. The
Shekel
Shekel or sheqel ( akk, 𒅆𒅗𒇻 ''šiqlu'' or ''siqlu,'' he, שקל, plural he, שקלים or shekels, Phoenician: ) is an ancient Mesopotamian coin, usually of silver. A shekel was first a unit of weight—very roughly —and became c ...
are the first to refer to a unit of weight and currency, used by the
Semitic peoples
Semites, Semitic peoples or Semitic cultures is an obsolete term for an ethnic, cultural or racial group.[Mesopotamia
Mesopotamia ''Mesopotamíā''; ar, بِلَاد ٱلرَّافِدَيْن or ; syc, ܐܪܡ ܢܗܪ̈ܝܢ, or , ) is a historical region of Western Asia situated within the Tigris–Euphrates river system, in the northern part of the F ...]
circa 3000 BC. and referred to a specific mass of
barley
Barley (''Hordeum vulgare''), a member of the grass family, is a major cereal grain grown in temperate climates globally. It was one of the first cultivated grains, particularly in Eurasia as early as 10,000 years ago. Globally 70% of barley pr ...
which related other values in a
metric
Metric or metrical may refer to:
* Metric system, an internationally adopted decimal system of measurement
* An adjective indicating relation to measurement in general, or a noun describing a specific type of measurement
Mathematics
In mathem ...
such as silver, bronze, copper, etc. A barley/shekel was originally both a unit of
currency
A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins.
A more general def ...
and a unit of weight, just as the British Pound was originally a unit denominating a one-pound mass of silver.
[.]
For most people, the exchange of goods occurred through social relationships. There were also traders who bartered in the marketplaces. In
Ancient Greece
Ancient Greece ( el, Ἑλλάς, Hellás) was a northeastern Mediterranean civilization, existing from the Greek Dark Ages of the 12th–9th centuries BC to the end of classical antiquity ( AD 600), that comprised a loose collection of cult ...
, where the present English word 'economy' originated,
many people were
bond slaves
Debt bondage, also known as debt slavery, bonded labour, or peonage, is the pledge of a person's services as security for the repayment for a debt or other obligation. Where the terms of the repayment are not clearly or reasonably stated, the pe ...
of the
freeholders. The economic discussion was driven by
scarcity
In economics, scarcity "refers to the basic fact of life that there exists only a finite amount of human and nonhuman resources which the best technical knowledge is capable of using to produce only limited maximum amounts of each economic good. ...
.
Middle Ages
In the Middle Ages, what is now known as an economy was not far from the subsistence level. Most exchange occurred within
social groups
In the social sciences, a social group can be defined as two or more people who interact with one another, share similar characteristics, and collectively have a sense of unity. Regardless, social groups come in a myriad of sizes and varieties ...
. On top of this, the great conquerors raised what we now call
venture capital
Venture capital (often abbreviated as VC) is a form of private equity financing that is provided by venture capital firms or funds to startups, early-stage, and emerging companies that have been deemed to have high growth potential or which ha ...
(from ''ventura'', ital.; ''risk'') to finance their captures. The
capital
Capital may refer to:
Common uses
* Capital city, a municipality of primary status
** List of national capital cities
* Capital letter, an upper-case letter Economics and social sciences
* Capital (economics), the durable produced goods used f ...
should be refunded by the goods they would bring up in the
New World
The term ''New World'' is often used to mean the majority of Earth's Western Hemisphere, specifically the Americas."America." ''The Oxford Companion to the English Language'' (). McArthur, Tom, ed., 1992. New York: Oxford University Press, p. 3 ...
. The discoveries of
Marco Polo
Marco Polo (, , ; 8 January 1324) was a Venetian merchant, explorer and writer who travelled through Asia along the Silk Road between 1271 and 1295. His travels are recorded in ''The Travels of Marco Polo'' (also known as ''Book of the Marv ...
(1254–1324),
Christopher Columbus
Christopher Columbus
* lij, Cristoffa C(or)ombo
* es, link=no, Cristóbal Colón
* pt, Cristóvão Colombo
* ca, Cristòfor (or )
* la, Christophorus Columbus. (; born between 25 August and 31 October 1451, died 20 May 1506) was a ...
(1451–1506) and
Vasco da Gama
Vasco da Gama, 1st Count of Vidigueira (; ; c. 1460s – 24 December 1524), was a Portuguese explorer and the first European to reach India by sea.
His initial voyage to India by way of Cape of Good Hope (1497–1499) was the first to link E ...
(1469–1524) led to a first
global
Global means of or referring to a globe and may also refer to:
Entertainment
* ''Global'' (Paul van Dyk album), 2003
* ''Global'' (Bunji Garlin album), 2007
* ''Global'' (Humanoid album), 1989
* ''Global'' (Todd Rundgren album), 2015
* Bruno ...
economy. The first
enterprises were trading establishments. In 1513, the first
stock exchange
A stock exchange, securities exchange, or bourse is an exchange where stockbrokers and traders can buy and sell securities, such as shares of stock, bonds and other financial instruments. Stock exchanges may also provide facilities for th ...
was founded in
Antwerp
Antwerp (; nl, Antwerpen ; french: Anvers ; es, Amberes) is the largest city in Belgium by area at and the capital of Antwerp Province in the Flemish Region. With a population of 520,504, . Economy at the time meant primarily
trade
Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market.
An early form of trade, barter, saw the direct excha ...
.
The European captures became branches of the
Europe
Europe is a large peninsula conventionally considered a continent in its own right because of its great physical size and the weight of its history and traditions. Europe is also considered a Continent#Subcontinents, subcontinent of Eurasia ...
an states, the so-called
colonies
In modern parlance, a colony is a territory subject to a form of foreign rule. Though dominated by the foreign colonizers, colonies remain separate from the administration of the original country of the colonizers, the '' metropolitan state'' ...
. The rising
nation-state
A nation state is a political unit where the state and nation are congruent. It is a more precise concept than "country", since a country does not need to have a predominant ethnic group.
A nation, in the sense of a common ethnicity, may inc ...
s
Spain
, image_flag = Bandera de España.svg
, image_coat = Escudo de España (mazonado).svg
, national_motto = ''Plus ultra'' (Latin)(English: "Further Beyond")
, national_anthem = (English: "Royal March")
, i ...
,
Portugal
Portugal, officially the Portuguese Republic ( pt, República Portuguesa, links=yes ), is a country whose mainland is located on the Iberian Peninsula of Southwestern Europe, and whose territory also includes the Atlantic archipelagos of ...
,
France
France (), officially the French Republic ( ), is a country primarily located in Western Europe. It also comprises of Overseas France, overseas regions and territories in the Americas and the Atlantic Ocean, Atlantic, Pacific Ocean, Pac ...
,
Great Britain
Great Britain is an island in the North Atlantic Ocean off the northwest coast of continental Europe. With an area of , it is the largest of the British Isles, the largest European island and the ninth-largest island in the world. It is ...
and the
Netherlands
)
, anthem = ( en, "William of Nassau")
, image_map =
, map_caption =
, subdivision_type = Sovereign state
, subdivision_name = Kingdom of the Netherlands
, established_title = Before independence
, established_date = Spanish Netherl ...
tried to control the trade through
custom duties
Customs is an authority or agency in a country responsible for collecting tariffs and for controlling the flow of goods, including animals, transports, personal effects, and hazardous items, into and out of a country. Traditionally, customs ha ...
and (from ''mercator'', lat.:
merchant
A merchant is a person who trades in commodities produced by other people, especially one who trades with foreign countries. Historically, a merchant is anyone who is involved in business or trade. Merchants have operated for as long as indust ...
) was a first approach to intermediate between private wealth and
public interest
The public interest is "the welfare or well-being of the general public" and society.
Overview
Economist Lok Sang Ho in his ''Public Policy and the Public Interest'' argues that the public interest must be assessed impartially and, therefore ...
. The
secularization
In sociology, secularization (or secularisation) is the transformation of a society from close identification with religious values and institutions toward non-religious values and secular institutions. The ''secularization thesis'' expresses the ...
in Europe allowed states to use the immense property of the church for the development of towns. The influence of the
nobles
Nobility is a social class found in many societies that have an aristocracy. It is normally ranked immediately below royalty. Nobility has often been an estate of the realm with many exclusive functions and characteristics. The characteristi ...
decreased. The first
Secretaries of State for economy started their work.
Bankers
A bank is a financial institution that accepts deposits from the public and creates a demand deposit while simultaneously making loans. Lending activities can be directly performed by the bank or indirectly through capital markets.
Because ...
like
Amschel Mayer Rothschild
Baron Amschel Mayer von Rothschild (12 June 1773 – 6 December 1855) was a German Jewish banker of the wealthy Rothschild family.
He was the second child and eldest son of Mayer Amschel Rothschild (1744–1812), the founder of the dynasty, an ...
(1773–1855) started to finance national projects such as wars and
infrastructure
Infrastructure is the set of facilities and systems that serve a country, city, or other area, and encompasses the services and facilities necessary for its economy, households and firms to function. Infrastructure is composed of public and priv ...
. Economy from then on meant national economy as a topic for the economic activities of the
citizens
Citizenship is a "relationship between an individual and a state to which the individual owes allegiance and in turn is entitled to its protection".
Each state determines the conditions under which it will recognize persons as its citizens, and ...
of a state.
Industrial Revolution
The first
economist
An economist is a professional and practitioner in the social sciences, social science discipline of economics.
The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this ...
in the true modern meaning of the word was the Scotsman
Adam Smith
Adam Smith (baptized 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the thinking of political economy and key figure during the Scottish Enlightenment. Seen by some as "The Father of Economics"——— ...
(1723–1790) who was inspired partly by the ideas of
physiocracy
Physiocracy (; from the Greek for "government of nature") is an economic theory developed by a group of 18th-century Age of Enlightenment French economists who believed that the wealth of nations derived solely from the value of "land agricultur ...
, a reaction to mercantilism and also later Economics student, Adam Mari. He defined the elements of a national economy:
products
Product may refer to:
Business
* Product (business), an item that serves as a solution to a specific consumer problem.
* Product (project management), a deliverable or set of deliverables that contribute to a business solution
Mathematics
* Produ ...
are offered at a
natural price
In economic theory, a factor price is the unit cost of using a factor of production, such as labor or physical capital.
There has been much debate as to what determines factor prices. Classical and Marxist economists argue that factor prices de ...
generated by the use of
competition
Competition is a rivalry where two or more parties strive for a common goal which cannot be shared: where one's gain is the other's loss (an example of which is a zero-sum game). Competition can arise between entities such as organisms, indivi ...
-
supply and demand
In microeconomics, supply and demand is an economic model of price determination in a Market (economics), market. It postulates that, Ceteris paribus, holding all else equal, in a perfect competition, competitive market, the unit price for a ...
- and the
division of labor
The division of labour is the separation of the tasks in any economic system or organisation so that participants may specialise (specialisation). Individuals, organizations, and nations are endowed with, or acquire specialised capabilities, and ...
. He maintained that the basic motive for
free trade
Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econo ...
is human self-interest. The so-called self-interest hypothesis became the
anthropological
Anthropology is the scientific study of humanity, concerned with human behavior, human biology, cultures, societies, and linguistics, in both the present and past, including past human species. Social anthropology studies patterns of behavi ...
basis for economics.
Thomas Malthus
Thomas Robert Malthus (; 13/14 February 1766 – 29 December 1834) was an English cleric, scholar and influential economist in the fields of political economy and demography.
In his 1798 book '' An Essay on the Principle of Population'', Mal ...
(1766–1834) transferred the idea of supply and demand to the problem of
overpopulation
Overpopulation or overabundance is a phenomenon in which a species' population becomes larger than the carrying capacity of its environment. This may be caused by increased birth rates, lowered mortality rates, reduced predation or large scale m ...
.
The
Industrial Revolution
The Industrial Revolution was the transition to new manufacturing processes in Great Britain, continental Europe, and the United States, that occurred during the period from around 1760 to about 1820–1840. This transition included going f ...
was a period from the 18th to the 19th century where major changes in
agriculture
Agriculture or farming is the practice of cultivating plants and livestock. Agriculture was the key development in the rise of sedentary human civilization, whereby farming of domesticated species created food surpluses that enabled people to ...
,
manufacturing
Manufacturing is the creation or production of goods with the help of equipment, labor, machines, tools, and chemical or biological processing or formulation. It is the essence of secondary sector of the economy. The term may refer to a r ...
,
mining
Mining is the extraction of valuable minerals or other geological materials from the Earth, usually from an ore body, lode, vein, seam, reef, or placer deposit. The exploitation of these deposits for raw material is based on the economic via ...
, and
transport
Transport (in British English), or transportation (in American English), is the intentional movement of humans, animals, and goods from one location to another. Modes of transport include air, land (rail and road), water, cable, pipeline, an ...
had a profound effect on the socioeconomic and cultural conditions starting in the
United Kingdom
The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Europe, off the north-western coast of the continental mainland. It comprises England, Scotland, Wales and North ...
, then subsequently spreading throughout
Europe
Europe is a large peninsula conventionally considered a continent in its own right because of its great physical size and the weight of its history and traditions. Europe is also considered a Continent#Subcontinents, subcontinent of Eurasia ...
,
North America
North America is a continent in the Northern Hemisphere and almost entirely within the Western Hemisphere. It is bordered to the north by the Arctic Ocean, to the east by the Atlantic Ocean, to the southeast by South America and the Car ...
, and eventually the world. The onset of the Industrial Revolution marked a major turning point in human history; almost every aspect of daily life was eventually influenced in some way.
In Europe wild
capitalism
Capitalism is an economic system based on the private ownership of the means of production and their operation for Profit (economics), profit. Central characteristics of capitalism include capital accumulation, competitive markets, pric ...
started to replace the system of
mercantilism
Mercantilism is an economic policy that is designed to maximize the exports and minimize the imports for an economy. It promotes imperialism, colonialism, tariffs and subsidies on traded goods to achieve that goal. The policy aims to reduce a ...
(today:
protectionism
Protectionism, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations. ...
) and led to
economic growth
Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy in a financial year. Statisticians conventionally measure such growth as the percent rate of ...
. The period today is called
industrial revolution
The Industrial Revolution was the transition to new manufacturing processes in Great Britain, continental Europe, and the United States, that occurred during the period from around 1760 to about 1820–1840. This transition included going f ...
because the system of
Production
Production may refer to:
Economics and business
* Production (economics)
* Production, the act of manufacturing goods
* Production, in the outline of industrial organization, the act of making products (goods and services)
* Production as a stati ...
, production and
division of labor
The division of labour is the separation of the tasks in any economic system or organisation so that participants may specialise (specialisation). Individuals, organizations, and nations are endowed with, or acquire specialised capabilities, and ...
enabled the
mass production
Mass production, also known as flow production or continuous production, is the production of substantial amounts of standardized products in a constant flow, including and especially on assembly lines. Together with job production and batch ...
of
goods
In economics, goods are items that satisfy human wants
and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not tran ...
.
20th century
The contemporary concept of "the economy" wasn't popularly known until the American
Great Depression
The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
in the 1930s.
After the chaos of two
World War
A world war is an international conflict which involves all or most of the world's major powers. Conventionally, the term is reserved for two major international conflicts that occurred during the first half of the 20th century, World WarI (1914 ...
s and the devastating Great Depression, policymakers searched for new ways of controlling the course of the economy. This was explored and discussed by
Friedrich August von Hayek
Friedrich August von Hayek ( , ; 8 May 189923 March 1992), often referred to by his initials F. A. Hayek, was an Austrian–British economist, legal theorist and philosopher who is best known for his defense of classical liberalism. Haye ...
(1899–1992) and Milton Friedman (1912–2006) who pleaded for a global
free trade
Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econo ...
and are supposed to be the fathers of the so-called neoliberalism.
However, the prevailing view was that held by John Maynard Keynes (1883–1946), who argued for a stronger control of the market (economics), markets by the state. The theory that the state can alleviate economic problems and instigate economic growth through state manipulation of aggregate demand is called Keynesianism in his honor. In the late 1950s, the economic growth in America and Europe—often called Wirtschaftswunder (ger: ''economic miracle'') —brought up a new form of economy: mass consumption economy. In 1958, John Kenneth Galbraith (1908–2006) was the first to speak of an affluent society in his book ''The Affluent Society''. In most of the countries the economic system is called a social market economy.
21st century
![Frankfurt Stock Exchange (Ank Kumar) 02](https://upload.wikimedia.org/wikipedia/commons/c/c4/Frankfurt_Stock_Exchange_%28Ank_Kumar%29_02.jpg)
With revolutions of 1989, the fall of the Iron Curtain and the transition of the countries of the Eastern Bloc towards democratic government and market economies, the idea of the post-industrial society is brought into importance as its role is to mark together the significance that the service sector receives instead of industrialization. Some attribute the first use of this term to Daniel Bell's 1973 book, ''The Coming of Post-Industrial Society'', while others attribute it to social philosopher Ivan Illich's book, ''Tools for Conviviality''. The term is also applied in philosophy to designate the fading of postmodernism in the late 90s and especially in the beginning of the 21st century.
With the spread of Internet as a mass media and communication medium especially after 2000–2001, the idea for the Internet and information economy is given place because of the growing importance of e-commerce and electronic businesses, also the term for a global information society as understanding of a new type of "all-connected" society is created. In the late 2000s, the new type of economies and economic expansions of countries like Chinese Century, China, Brazil as an emerging superpower, Brazil, and India as a potential superpower, India bring attention and interest to different from the usually dominating Western type economies and economic models.
Elements
Types
A market economy is one where good (economics), goods and service (economics), services are produced and exchanged according to demand and supply (economics), supply between participants (economic agents) by barter or a medium of exchange with a credit (finance), credit or debit value (economics), value accepted within the network, such as a unit of currency. A planned economy is one where political agents directly control what is produced and how it is sold and distributed. A green economy is low-carbon and resource efficient. In a green economy, growth in income and employment is driven by public and private investments that reduce carbon emissions and pollution, enhance energy efficiency (physics), energy and resource efficiency, and prevent the Biodiversity loss, loss of biodiversity and ecosystem services. A gig economy is one in which short-term jobs are assigned or chosen on-demand. The global economy refers to humanity's Economic system, economic system or systems overall. An informal economy is neither taxed nor monitored by any form of government.
Sectors
The economy may be considered as having developed through the following phases or degrees of precedence:
* The Ancient history, ancient economy was mainly based on subsistence economy, subsistence farming.
* The
industrial revolution
The Industrial Revolution was the transition to new manufacturing processes in Great Britain, continental Europe, and the United States, that occurred during the period from around 1760 to about 1820–1840. This transition included going f ...
phase lessened the role of subsistence farming, converting it to more extensive farming, extensive and monoculture, mono-cultural forms of agriculture in the last three centuries. The economic growth took place mostly in mining, construction and manufacturing industries. Commerce became more significant due to the need for improved exchange and distribution of produce throughout the community.
* In the economies of modern consumer society, consumer societies phase there is a growing part played by
services
Service may refer to:
Activities
* Administrative service, a required part of the workload of university faculty
* Civil service, the body of employees of a government
* Community service, volunteer service for the benefit of a community or a p ...
, finance, and
technology
Technology is the application of knowledge to reach practical goals in a specifiable and reproducible way. The word ''technology'' may also mean the product of such an endeavor. The use of technology is widely prevalent in medicine, science, ...
—the knowledge economy.
In modern economies, these phase precedences are somewhat differently expressed by the three-sector model:
* Primary sector of the economy, Primary: Involves the extraction and production of raw materials, such as corn, coal, wood and iron.
* Secondary sector of the economy, Secondary: Involves the transformation of raw or intermediate materials into goods e.g. manufacturing steel into cars, or textiles into clothing.
* Tertiary sector of the economy, Tertiary: Involves the provision of services to consumers and businesses, such as baby-sitting, film, cinema and banking.
Other sectors of the developed community include:
* the public sector or state sector (which usually includes: parliament, law-courts and government centers, various emergency services, public health, shelters for impoverished and threatened people, transport facilities, air/sea ports, post-natal care, hospitals, schools, libraries, museums, preserved historical buildings, parks/gardens, nature-reserves, some universities, national sports grounds/stadiums, national arts/concert-halls or theaters and centers for various religions).
* the private sector or privately run businesses.
* the voluntary sector or social sector.
Indicators
The gross domestic product (GDP) of a country is a measure of the size of its economy, or more specifically, monetary measure of the market value of all the final goods and services produced. The most conventional economic analysis of a country relies heavily on economic indicators like the GDP and GDP per capita. While often useful, GDP only includes economic activity for which money is exchanged.
Due to the growing importance of the financial sector in modern times, the term ''real economy'' is used by analysts as well as politicians to denote the part of the economy that is concerned with the actual production of goods and services, as ostensibly contrasted with the ''paper economy'', or the financial side of the economy, which is concerned with buying and selling on the financial markets. Alternate and long-standing terminology distinguishes measures of an economy expressed in Real versus nominal value (economics), real values (adjusted for inflation), such as real GDP, or in Real versus nominal value (economics), nominal values (unadjusted for inflation).
Studies
The study of economics are roughly divided into macroeconomics and microeconomics. Today, the range of fields of study examining the economy revolves around the social science of economics, but may also include economic sociology, sociology,
economic history, history, economic anthropology, anthropology, and economic geography, geography. Practical fields directly related to the human activities involving
production
Production may refer to:
Economics and business
* Production (economics)
* Production, the act of manufacturing goods
* Production, in the outline of industrial organization, the act of making products (goods and services)
* Production as a stati ...
, distribution (economics), distribution, Trade, exchange, and consumption (economics), consumption of goods and services as a whole are Business economics, business, Engineering economics, engineering,
[ ] Economic policy, government, and Health economics, health care.
See also
* Economic history
* Economic system
References
Further reading
* Friedman, Milton, ''Capitalism and Freedom'', 1962.
* Rothbard, Murray, ''Man, Economy, and State: A Treatise on Economic Principles'', 1962.
* Galbraith, John Kenneth, ''The Affluent Society'', 1958.
* Mises, Ludwig von, ''Human Action: A Treatise on Economics'', 1949.
* Keynes, John Maynard, ''The General Theory of Employment, Interest and Money'', 1936.
* Marx, Karl, ''Das Kapital'', 1867.
* Smith, Adam, ''An Inquiry Into the Nature and Causes of the Wealth of Nations, An Inquiry into the Nature and Causes of the Wealth of Nations'', 1776.
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