An economy (from Greek οίκος – "household" and νέμoμαι
– "manage") is an area of the production, distribution, or trade,
and consumption of goods and services by different agents. Understood
in its broadest sense, 'The economy is defined as a social domain that
emphasizes the practices, discourses, and material expressions
associated with the production, use, and management of resources'.
Economic agents can be individuals, businesses, organizations, or
governments. Economic transactions occur when two parties agree to the
value or price of the transacted good or service, commonly expressed
in a certain currency. 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 (automation, accelerator of process, reduction of cost
functions), innovation (new products, services, processes, new
markets, expanding markets, diversification of markets, niche markets,
increases revenue functions) such as, that which produces intellectual
property and changes in industrial relations (for example, child labor
being replaced in some parts of the world with universal access to
A given economy is the result of a set of processes that involves its
culture, values, education, technological evolution, history, social
organization, political structure and legal systems, as well as its
geography, natural resource endowment, and ecology, 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 human practices and transactions. It does
not stand alone.
A market-based economy is where goods and services are produced and
exchanged according to demand and supply between participants
(economic agents) by barter or a medium of exchange with a credit or
debit value accepted within the network, such as a unit of currency.
A command-based economy is where political agents directly control
what is produced and how it is sold and distributed.
A green economy is low-carbon, resource efficient, and socially
inclusive. In a green economy, growth in income and employment are
driven by public and private investments that reduce carbon emissions
and pollution, enhance energy and resource efficiency, and prevent the
loss of biodiversity and ecosystem services.
3.1 Ancient times
3.2 Middle ages
3.3 Early modern times
3.4 The Industrial Revolution
3.5 The invention of the economy
3.6 Late 20th – beginning of 21st century
4 Economic phases of precedence
5 Economic measures
6 Informal economy
7 Economic research
8 See also
11 Further reading
Today the range of fields of the study examining the economy revolve
around the social science of economics, but may include sociology
(economic sociology), history (economic history), anthropology
(economic anthropology), and geography (economic geography). Practical
fields directly related to the human activities involving production,
distribution, exchange, and consumption of goods and services as a
whole, are engineering, management, business administration, applied
science, and finance.
All professions, occupations, economic agents or economic activities,
contribute to the economy. Consumption, saving, and investment are
variable components in the economy that determine macroeconomic
equilibrium. There are three main sectors of economic activity:
primary, secondary, and tertiary.
Due to the growing importance of the economical 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 values
(adjusted for inflation), such as real GDP, or in nominal values
(unadjusted for inflation).,
The English words "economy" and "economics" can be traced back to the
Greek word οἰκονόμος (i.e. "household management"), a
composite word derived from οἶκος ("house;household;home") and
νέμω ("manage; distribute;to deal out;dispense") by way of
οἰκονομία ("household management").
The first recorded sense of the word "economy" is in the phrase "the
management of œconomic affairs", found in a work possibly composed in
a monastery in 1440. "Economy" is later recorded in more general
senses, including "thrift" and "administration".
The most frequently used current sense, denoting "the economic system
of a country or an area", seems not to have developed until the 19th
or 20th century.
Storage room, Palace of Knossos.
See also: Palace economy
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 developed a
large-scale economy based on commodity money, while the Babylonians
and their neighboring city states later developed the earliest system
of economics as we think of, in terms of rules/laws on debt, legal
contracts and law codes relating to business practices, and private
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
The ancient economy was mainly based on subsistence farming. The
Shekel referred to an ancient unit of weight and currency. The first
usage of the term came from
Mesopotamia circa 3000 BC., and referred
to a specific mass of barley which related other values in a metric
such as silver, bronze, copper etc. A barley/shekel was originally
both a unit of currency 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, where the present English word
'economy' originated, many people were bond slaves of the freeholders.
The economic discussion was driven by scarcity.
10 Ducats (1621), minted as circulating currency by the Fugger Family.
Medieval times, what we now call economy was not far from the
subsistence level. Most exchange occurred within social groups. On top
of this, the great conquerors raised venture capital (from ventura,
ital.; risk) to finance their captures. The capital should be refunded
by the goods they would bring up in the New World. Merchants such as
Jakob Fugger (1459–1525) and Giovanni di Bicci de' Medici
(1360–1428) founded the first banks. The
Marco Polo (1254–1324), Christopher Columbus
Vasco da Gama
Vasco da Gama (1469–1524) led to a first global
economy. The first enterprises were trading establishments. In 1513,
the first stock exchange was founded in Antwerpen.
Economy at the time
meant primarily trade.
Early modern times
The European captures became branches of the European states, the
so-called colonies. The rising nation-states Spain, Portugal, France,
Great Britain and the
Netherlands tried to control the trade through
custom duties and (from mercator, lat.: merchant) was a first approach
to intermediate between private wealth and public interest. The
Europe allowed states to use the immense property of
the church for the development of towns. The influence of the nobles
decreased. The first
Secretaries of State for economy started their
Amschel Mayer Rothschild (1773–1855) started to
finance national projects such as wars and infrastructure. Economy
from then on meant national economy as a topic for the economic
activities of the citizens of a state.
The Industrial Revolution
Sächsische Maschinenfabrik in Chemnitz, Germany, 1868
Main article: Industrial Revolution
The first economist in the true modern meaning of the word was the
Adam Smith (1723–1790) who was inspired partly by the ideas
of physiocracy, a reaction to mercantilism and also later Economics
student, Adam Mari. He defined the elements of a national economy:
products are offered at a natural price generated by the use of
competition - supply and demand - and the division of labor. He
maintained that the basic motive for free trade is human
self-interest. The so-called self-interest hypothesis became the
anthropological basis for economics.
Thomas Malthus (1766–1834)
transferred the idea of supply and demand to the problem of
Industrial Revolution was a period from the 18th to the 19th
century where major changes in agriculture, manufacturing, mining, and
transport had a profound effect on the socioeconomic and cultural
conditions starting in the United Kingdom, then subsequently spreading
throughout Europe, North America, and eventually the world. The onset
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 started to replace the system
of mercantilism (today: protectionism) and led to economic growth. The
period today is called industrial revolution because the system of
Production, production and division of labor enabled the mass
production of goods.
The invention of the economy
The contemporary concept of "the economy" wasn't popularly known until
Great Depression in the 1930s.
After the chaos of two
World Wars 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 (1899–1992) and
Milton Friedman (1912–2006) who
pleaded for a global free trade and are supposed to be the fathers of
the so-called neoliberalism. However, the prevailing view was that
John Maynard Keynes
John Maynard Keynes (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
Wirtschaftswunder (ger: economic miracle)
—brought up a new form of economy: mass consumption economy. In
John Kenneth Galbraith
John Kenneth Galbraith (1908–2006) was the first to speak of
an affluent society. In most of the countries the economic system is
called a social market economy.
Late 20th – beginning of 21st century
ESET (IT security company) headquarters in Bratislava, Slovakia.
With the fall of the
Iron Curtain and the transition of the countries
of the Eastern Block 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 at the place of the industrialization, as well
the first usage of this term, some relate it to Daniel Bell's 1973
book, The Coming of Post-Industrial Society, while other - 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 ecommerce
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 00s, the new type of economies and economic
expansions of countries like China, Brazil, and India bring attention
and interest to different from the usually dominating Western type
economies and economic models.
Economic phases of precedence
The economy may be considered as having developed through the
following Phases or Degrees of Precedence.
The ancient economy was mainly based on subsistence farming.
The industrial revolution 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 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, and technology—the knowledge
In modern economies, these phase precedences are somewhat differently
expressed by the three-sector theory.
Primary stage/degree of the economy: Involves the extraction and
production of raw materials, such as corn, coal, wood and iron. (A
coal miner and a fisherman would be workers in the primary degree.)
Secondary stage/degree of the economy: Involves the transformation of
raw or intermediate materials into goods e.g. manufacturing steel into
cars, or textiles into clothing. (A builder and a dressmaker would be
workers in the secondary degree.) At this stage the associated
industrial economy is also sub-divided into several economic sectors
(also called industries). Their separate evolution during the
Industrial Revolution phase is dealt with elsewhere.
Tertiary stage/degree of the economy: Involves the provision of
services to consumers and businesses, such as baby-sitting, cinema and
banking. (A shopkeeper and an accountant would be workers in the
Quaternary stage/degree of the economy: Involves the research and
development needed to produce products from natural resources and
their subsequent by-products. (A logging company might research ways
to use partially burnt wood to be processed so that the undamaged
portions of it can be made into pulp for paper.) Note that education
is sometimes included in this sector.
Other sectors of the developed community include :
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
Private Sector or privately run businesses.
Social sector or Voluntary sector.
There are a number of ways to measure economic activity of a nation.
These methods of measuring economic activity include:
Gross domestic product
GDP per capita
Rate of Inflation
Balance of Trade
Gross domestic product
Gross domestic product of a country is a measure of the size
of its economy. The most conventional economic analysis of a country
relies heavily on economic indicators like the
GDP per capita.
While often useful,
GDP only includes economic activity for which
money is exchanged.
Black market peddler on graffiti, Kharkiv
Main article: Informal economy
An informal economy is economic activity that is neither taxed nor
monitored by a government, contrasted with a formal economy. The
informal economy is thus not included in that government's gross
national product (GNP). Although the informal economy is often
associated with developing countries, all economic systems contain an
informal economy in some proportion.
Informal economic activity is a dynamic process which includes many
aspects of economic and social theory including exchange, regulation,
and enforcement. By its nature, it is necessarily difficult to
observe, study, define, and measure. No single source readily or
authoritatively defines informal economy as a unit of study.
The terms "under the table" and "off the books" typically refer to
this type of economy. The term black market refers to a specific
subset of the informal economy. The term "informal sector" was used in
many earlier studies, and has been mostly replaced in more recent
studies which use the newer term.
The informal sector makes up a significant portion of the economies in
developing countries but it is often stigmatized as troublesome and
unmanageable. However the informal sector provides critical economic
opportunities for the poor and has been expanding rapidly since the
1960s. As such, integrating the informal economy into the formal
sector is an important policy challenge.
Economic research is conducted in fields as different as Economics,
Economic sociology, Economic anthropology, or Economic history.
Business and economics portal
Economic history (includes list by country)
History of money
List of economists
List of economic communities
List of free trade agreements
Supply and demand
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