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An economy is an area of the production,
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 exc ...
, as well as consumption 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 ...
and services. 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 ...
,
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 di ...
, 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. ...
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 buying and selling products (such as goods and services). It is also "any activity or enterprise entered into for profit." Having a business name does not separ ...
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 f ...
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 i ...
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 ...
. 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, scien ...
,
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 enti ...
(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 co ...
).


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 pe ...
'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

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 ...
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 representa ...
, 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. 1 ...
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, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics anal ...
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 ...
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 p ...
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 mathe ...
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 ...
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 cu ...
, 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 per ...
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 h ...
(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 fo ...
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. ...
. 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 ...
(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 t ...
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 exc ...
. 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 in ...
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") , ...
,
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 th ...
,
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 ...
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 ...
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, therefor ...
. 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 ...
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 character ...
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. Becaus ...
like Amschel Mayer Rothschild (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 agricult ...
, 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 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, ind ...
-
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 econ ...
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 be ...
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 ...
. 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 ...
,
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 ...
,
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 econom ...
, 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, pipelin ...
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 ...
, 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 th ...
, 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. Central characteristics of capitalism include capital accumulation, competitive markets, price system, private ...
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 ...
(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 regulation ...
) 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 o ...
. 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 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 ba ...
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 ...
.


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 Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the ...
(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 econ ...
and are supposed to be the fathers of the so-called
neoliberalism Neoliberalism (also neo-liberalism) is a term used to signify the late 20th century political reappearance of 19th-century ideas associated with free-market capitalism after it fell into decline following the Second World War. A prominent f ...
. However, the prevailing view was that held by
John Maynard Keynes John Maynard Keynes, 1st Baron Keynes, ( ; 5 June 1883 – 21 April 1946), was an English economist whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
(1883–1946), who argued for a stronger control of the 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 The ''Wirtschaftswunder'' (, "economic miracle"), also known as the Miracle on the Rhine, was the rapid reconstruction and development of the economies of West Germany and Austria after World War II (adopting an ordoliberalism-based social ma ...
(ger: ''economic miracle'') —brought up a new form of economy:
mass consumption economy Consumption is the act of using resources to satisfy current needs and wants. It is seen in contrast to investing, which is spending for acquisition of ''future'' income. Consumption is a major concept in economics and is also studied in many ...
. In 1958,
John Kenneth Galbraith John Kenneth Galbraith (October 15, 1908 – April 29, 2006), also known as Ken Galbraith, was a Canadian-American economist, diplomat, public official, and intellectual. His books on economic topics were bestsellers from the 1950s through t ...
(1908–2006) was the first to speak of an affluent society in his book ''
The Affluent Society ''The Affluent Society'' is a 1958 (4th edition revised 1984) book by Harvard economist John Kenneth Galbraith. The book sought to clearly outline the manner in which the post– World War II United States was becoming wealthy in the private s ...
''. In most of the countries the economic system is called a
social market economy The social market economy (SOME; german: soziale Marktwirtschaft), also called Rhine capitalism, Rhine-Alpine capitalism, the Rhenish model, and social capitalism, is a socioeconomic model combining a free-market capitalist economic system alon ...
.


21st century

With 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 In sociology, the post-industrial society is the stage of society's development when the service sector generates more wealth than the manufacturing sector of the economy. The term was originated by Alain Touraine and is closely related to si ...
is brought into importance as its role is to mark together the significance that the
service sector The tertiary sector of the economy, generally known as the service sector, is the third of the three economic sectors in the three-sector model (also known as the economic cycle). The others are the primary sector (raw materials) and the second ...
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 Postmodernism is an intellectual stance or mode of discourseNuyen, A.T., 1992. The Role of Rhetorical Devices in Postmodernist Discourse. Philosophy & Rhetoric, pp.183–194. characterized by skepticism toward the " grand narratives" of modern ...
in the late 90s and especially in the beginning of the 21st century. With the spread of
Internet The Internet (or internet) is the global system of interconnected computer networks that uses the Internet protocol suite (TCP/IP) to communicate between networks and devices. It is a '' network of networks'' that consists of private, p ...
as a mass media and communication medium especially after 2000–2001, the idea for the Internet and
information economy Information economy is an economy with an increased emphasis on informational activities and information industry, where information is valued as a capital good. The term was coined by Marc Porat, a graduate student at Stanford University, who ...
is given place because of the growing importance of
e-commerce E-commerce (electronic commerce) is the activity of electronically buying or selling of products on online services or over the Internet. E-commerce draws on technologies such as mobile commerce, electronic funds transfer, supply chain manag ...
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
China China, officially the People's Republic of China (PRC), is a country in East Asia. It is the world's List of countries and dependencies by population, most populous country, with a Population of China, population exceeding 1.4 billion, slig ...
,
Brazil Brazil ( pt, Brasil; ), officially the Federative Republic of Brazil (Portuguese: ), is the largest country in both South America and Latin America. At and with over 217 million people, Brazil is the world's fifth-largest country by area ...
, and
India India, officially the Republic of India (Hindi: ), is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area, the List of countries and dependencies by population, second-most populous ...
bring attention and interest to different from the usually dominating Western type economies and economic models.


Elements


Types

A
market economy A market economy is an economic system in which the decisions regarding investment, production and distribution to the consumers are guided by the price signals created by the forces of supply and demand, where all suppliers and consumers ...
is one where
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 ...
and services are produced and exchanged according to
demand In economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given time. The relationship between price and quantity demand is also called the demand curve. Demand for a specific item ...
and
supply Supply may refer to: *The amount of a resource that is available **Supply (economics), the amount of a product which is available to customers **Materiel, the goods and equipment for a military unit to fulfill its mission *Supply, as in confidenc ...
between participants (economic agents) by
barter In trade, barter (derived from ''baretor'') is a system of exchange in which participants in a transaction directly exchange goods or services for other goods or services without using a medium of exchange, such as money. Economists disti ...
or a
medium of exchange In economics, a medium of exchange is any item that is widely acceptable in exchange for goods and services. In modern economies, the most commonly used medium of exchange is currency. The origin of "mediums of exchange" in human societies is ass ...
with a
credit Credit (from Latin verb ''credit'', meaning "one believes") is the trust which allows one party to provide money or resources to another party wherein the second party does not reimburse the first party immediately (thereby generating a debt) ...
or
debit Debits and credits in double-entry bookkeeping are entries made in account ledgers to record changes in value resulting from business transactions. A debit entry in an account represents a transfer of value ''to'' that account, and a credit e ...
value Value or values may refer to: Ethics and social * Value (ethics) wherein said concept may be construed as treating actions themselves as abstract objects, associating value to them ** Values (Western philosophy) expands the notion of value beyo ...
accepted within the network, such as a unit of currency. A
planned economy A planned economy is a type of economic system where investment, production and the allocation of capital goods takes place according to economy-wide economic plans and production plans. A planned economy may use centralized, decentralized, ...
is one where political agents directly control what is produced and how it is sold and distributed. A
green economy A green economy is an economy that aims at reducing environmental risks and ecological scarcities, and that aims for sustainable development without degrading the environment. It is closely related with ecological economics, but has a more politi ...
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 In physics, energy (from Ancient Greek: ἐνέργεια, ''enérgeia'', “activity”) is the quantitative property that is transferred to a body or to a physical system, recognizable in the performance of work and in the form of ...
and resource efficiency, and prevent the
loss of biodiversity Biodiversity loss includes the worldwide extinction of different species, as well as the local reduction or loss of species in a certain habitat, resulting in a loss of biological diversity. The latter phenomenon can be temporary or permanent, de ...
and
ecosystem services Ecosystem services are the many and varied benefits to humans provided by the natural environment and healthy ecosystems. Such ecosystems include, for example, agroecosystems, forest ecosystem, grassland ecosystems, and aquatic ecosystems. ...
. A
gig economy Gig workers are independent contractors, online platform workers, contract firm workers, on-call workers, and temporary workers. Gig workers enter into formal agreements with on-demand companies to provide services to the company's clients. In m ...
is one in which short-term jobs are assigned or chosen on-demand. The
global economy The world economy or global economy is the economy of all humans of the world, referring to the global economic system, which includes all economic activities which are conducted both within and between nations, including production, consumptio ...
refers to humanity's economic system or systems overall. An
informal economy An informal economy (informal sector or grey economy) is the part of any economy that is neither taxed nor monitored by any form of government. Although the informal sector makes up a significant portion of the economies in developing countri ...
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 economy was mainly based on
subsistence A subsistence economy is an economy directed to basic subsistence (the provision of food, clothing, shelter) rather than to the market. Henceforth, "subsistence" is understood as supporting oneself at a minimum level. Often, the subsistence econo ...
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 and mono-cultural forms of agriculture in the last three centuries. The economic growth took place mostly in mining, construction and manufacturing industries.
Commerce Commerce is the large-scale organized system of activities, functions, procedures and institutions directly and indirectly related to the exchange (buying and selling) of goods and services among two or more parties within local, regional, natio ...
became more significant due to the need for improved exchange and distribution of produce throughout the community. * In the economies of modern consumer societies phase there is a growing part played by services,
finance Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of f ...
, 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, scien ...
—the
knowledge economy The knowledge economy (or the knowledge-based economy) is an economic system in which the production of goods and services is based principally on knowledge-intensive activities that contribute to advancement in technical and scientific inn ...
. In modern economies, these phase precedences are somewhat differently expressed by the
three-sector model The three-sector model in economics divides economies into three sectors of activity: extraction of raw materials ( primary), manufacturing ( secondary), and service industries which exist to facilitate the transport, distribution and sa ...
: *
Primary Primary or primaries may refer to: Arts, entertainment, and media Music Groups and labels * Primary (band), from Australia * Primary (musician), hip hop musician and record producer from South Korea * Primary Music, Israeli record label Works ...
: Involves the extraction and production of
raw materials A raw material, also known as a feedstock, unprocessed material, or primary commodity, is a basic material that is used to produce goods, finished goods, energy, or intermediate materials that are feedstock for future finished products. As feeds ...
, such as
corn Maize ( ; ''Zea mays'' subsp. ''mays'', from es, maíz after tnq, mahiz), also known as corn (North American and Australian English), is a cereal grain first domesticated by indigenous peoples in southern Mexico about 10,000 years ago. The ...
,
coal Coal is a combustible black or brownish-black sedimentary rock, formed as rock strata called coal seams. Coal is mostly carbon with variable amounts of other elements, chiefly hydrogen, sulfur, oxygen, and nitrogen. Coal is formed when ...
,
wood Wood is a porous and fibrous structural tissue found in the stems and roots of trees and other woody plants. It is an organic materiala natural composite of cellulose fibers that are strong in tension and embedded in a matrix of lignin ...
and
iron Iron () is a chemical element with symbol Fe (from la, ferrum) and atomic number 26. It is a metal that belongs to the first transition series and group 8 of the periodic table. It is, by mass, the most common element on Earth, right in ...
. *
Secondary Secondary may refer to: Science and nature * Secondary emission, of particles ** Secondary electrons, electrons generated as ionization products * The secondary winding, or the electrical or electronic circuit connected to the secondary winding i ...
: Involves the transformation of raw or intermediate materials into goods e.g. manufacturing steel into
cars A car or automobile is a motor vehicle with wheels. Most definitions of ''cars'' say that they run primarily on roads, Car seat, seat one to eight people, have four wheels, and mainly transport private transport#Personal transport, people in ...
, or
textiles Textile is an umbrella term that includes various fiber-based materials, including fibers, yarns, filaments, threads, different fabric types, etc. At first, the word "textiles" only referred to woven fabrics. However, weaving is not the ...
into clothing. *
Tertiary Tertiary ( ) is a widely used but obsolete term for the geologic period from 66 million to 2.6 million years ago. The period began with the demise of the non-avian dinosaurs in the Cretaceous–Paleogene extinction event, at the start ...
: Involves the provision of services to consumers and businesses, such as
baby-sitting Babysitting is temporarily caring for a child. Babysitting can be a paid job for all ages; however, it is best known as a temporary activity for early teenagers who are not yet eligible for employment in the general economy. It provides auton ...
,
cinema Cinema may refer to: Film * Cinematography, the art of motion-picture photography * Film or movie, a series of still images that create the illusion of a moving image ** Film industry, the technological and commercial institutions of filmmaking ...
and
banking 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 ...
. Other sectors of the developed community include: * the
public sector The public sector, also called the state sector, is the part of the economy composed of both public services and public enterprises. Public sectors include the public goods and governmental services such as the military, law enforcement, inf ...
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 The private sector is the part of the economy, sometimes referred to as the citizen sector, which is owned by private groups, usually as a means of establishment for profit or non profit, rather than being owned by the government. Employment The ...
or privately run businesses. * the
voluntary sector The voluntary sector, independent sector, or civic sector is the realm of social activity undertaken by organizations that are non-governmental nonprofit organizations. This sector is also called the third sector, community sector, and nonprofit ...
or social sector.


Indicators

The
gross domestic product Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced and sold (not resold) in a specific time period by countries. Due to its complex and subjective nature this measure is of ...
(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 good A final good or consumer good is a final product ready for sale that is used by the consumer to satisfy current wants or needs, unlike a intermediate good, which is used to produce other goods. A microwave oven or a bicycle is a final good, but ...
s and services produced. The most conventional economic analysis of a country relies heavily on economic indicators like the GDP and
GDP per capita Lists of countries by GDP per capita list the countries in the world by their gross domestic product (GDP) per capita. The lists may be based on nominal or purchasing power parity GDP. Gross national income (GNI) per capita accounts for inflo ...
. 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 Real may refer to: Currencies * Brazilian real (R$) * Central American Republic real * Mexican real * Portuguese real * Spanish real * Spanish colonial real Music Albums * ''Real'' (L'Arc-en-Ciel album) (2000) * ''Real'' (Bright album) (2010) ...
values (adjusted for
inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...
), such as
real GDP Real gross domestic product (real GDP) is a macroeconomic measure of the value of economic output adjusted for price changes (i.e. inflation or deflation). This adjustment transforms the money-value measure, nominal GDP, into an index for quantity ...
, or in nominal values (unadjusted for inflation).


Studies

The study of economics are roughly divided into
macroeconomics Macroeconomics (from the Greek prefix ''makro-'' meaning "large" + ''economics'') is a branch of economics dealing with performance, structure, behavior, and decision-making of an economy as a whole. For example, using interest rates, taxes, and ...
and
microeconomics Microeconomics is a branch of mainstream economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. Microeconomics fo ...
. Today, the range of fields of study examining the economy revolves around the
social science Social science is one of the branches of science, devoted to the study of societies and the relationships among individuals within those societies. The term was formerly used to refer to the field of sociology, the original "science of s ...
of economics, but may also include
sociology Sociology is a social science that focuses on society, human social behavior, patterns of social relationships, social interaction, and aspects of culture associated with everyday life. It uses various methods of empirical investigation an ...
,
history History (derived ) is the systematic study and the documentation of the human activity. The time period of event before the invention of writing systems is considered prehistory. "History" is an umbrella term comprising past events as well ...
,
anthropology 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 be ...
, and
geography Geography (from Greek: , ''geographia''. Combination of Greek words ‘Geo’ (The Earth) and ‘Graphien’ (to describe), literally "earth description") is a field of science devoted to the study of the lands, features, inhabitants, an ...
. Practical fields directly related to the human activities involving production,
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 ...
, exchange, and consumption of
goods and services Goods are items that are usually (but not always) tangible, such as pens, physical books, salt, apples, and hats. Services are activities provided by other people, who include architects, suppliers, contractors, technologists, teachers, doc ...
as a whole are
business Business is the practice of making one's living or making money by producing or buying and selling products (such as goods and services). It is also "any activity or enterprise entered into for profit." Having a business name does not separ ...
,
engineering Engineering is the use of scientific principles to design and build machines, structures, and other items, including bridges, tunnels, roads, vehicles, and buildings. The discipline of engineering encompasses a broad range of more speciali ...
,
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 i ...
, and
health care Health care or healthcare is the improvement of health via the prevention, diagnosis, treatment, amelioration or cure of disease, illness, injury, and other physical and mental impairments in people. Health care is delivered by health pr ...
.


See also

*
Economic history Economic history is the academic learning of economies or economic events of the past. Research is conducted using a combination of historical methods, statistical methods and the application of economic theory to historical situations and i ...
*
Economic system An economic system, or economic order, is a system of production, resource allocation and distribution of goods and services within a society or a given geographic area. It includes the combination of the various institutions, agencies, entit ...


References


Further reading

* Friedman, Milton, ''
Capitalism and Freedom ''Capitalism and Freedom'' is a book by Milton Friedman originally published in 1962 by the University of Chicago Press which discusses the role of economic capitalism in liberal society. It has sold more than half a million copies since 1962 an ...
'', 1962. * Rothbard, Murray, '' Man, Economy, and State: A Treatise on Economic Principles'', 1962. * Galbraith, John Kenneth, ''
The Affluent Society ''The Affluent Society'' is a 1958 (4th edition revised 1984) book by Harvard economist John Kenneth Galbraith. The book sought to clearly outline the manner in which the post– World War II United States was becoming wealthy in the private s ...
'', 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 ''Das Kapital'', also known as ''Capital: A Critique of Political Economy'' or sometimes simply ''Capital'' (german: Das Kapital. Kritik der politischen Ökonomie, link=no, ; 1867–1883), is a foundational theoretical text in materialist phi ...
'', 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'', generally referred to by its shortened title ''The Wealth of Nations'', is the '' magnum opus'' of the Scottish economist and moral philosopher Adam Smith. First published in ...
'', 1776. {{Authority control Main topic articles