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An economy (from
Greek Greek may refer to: Greece Anything of, from, or related to Greece Greece ( el, Ελλάδα, , ), officially the Hellenic Republic, is a country located in Southeast Europe. Its population is approximately 10.7 million as of 2018; Athens is ...
οίκος – "household" and νέμoμαι – "manage") is an area of the production, distribution and
trade Trade involves the transfer of goods or services from one person or entity to another, often in exchange for money. Economists refer to a system A system is a group of Interaction, interacting or interrelated elements that act according to ...
, as well as consumption of
goods In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
and services by different agents. 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 resources'. 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 interrelated human practices and transactions that does not stand alone. Economic agents can be individuals, businesses, organizations, or governments. 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" in the most specific sense is money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed t ...
. 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 ("science of craft", from Ancient Greek, Greek , ''techne'', "art, skill, cunning of hand"; and , ''wikt:-logia, -logia'') is the sum of Art techniques and materials, techniques, skills, Scientific method, methods, and Business proc ...
,
innovation 190px, 1,093_U.S._patents_in_his_name..html" ;"title="phonograph">Thomas Edison with phonograph. Edison was one of the most prolific inventors in history, holding List of Edison patents">1,093 U.S. patents in his name.">phonograph">Thomas Ediso ...
(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 (most notably
child labor Child labour ( British English) or child labor (American English American English (AmE, AE, AmEng, USEng, en-US), sometimes called United States English or U.S. English, is the set of varieties of the English language native to the Un ...
being replaced in some parts of the world with
universal access to education Universal access to education Education is the process of facilitating learning, or the acquisition of knowledge, skills, value (ethics), values, morals, beliefs, and habits. Educational methods include teaching, training, storytelli ...
). A
market-based economy A market economy is an economic system in which the decisions regarding investment To invest is to allocate money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed to King George III ar ...
is one where
goods In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
and services are produced and exchanged according to
demand In economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods ...
and supply 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 Image:National ...
or a
medium of exchange Medium of exchange is a term in economics Economics () is the social science that studies how people interact with value; in particular, the Production (economics), production, distribution (economics), distribution, and Consumption (econo ...
with a credit (finance), credit or debit value (economics), value accepted within the network, such as a unit of currency. A planned economy, command-based economy is one 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 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 via online platforms. New economy is a term that referred to the whole emerging ecosystem where new standards and practices were introduced, usually as a result of technological innovations. The global economy refers to humanity's Economic system, economic system or systems overall.


Range

Today the range of fields of study examining the economy revolves 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 (economics), distribution, Trade, exchange, and consumption (economics), 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 (economics), Consumption, saving (money), saving, and investment are variable components in the economy that determine macroeconomic equilibrium. There are three main sectors of economic activity: Primary sector of the economy, primary, Secondary sector of the economy, secondary, and Tertiary sector of the economy, tertiary. 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).


Etymology

The English language, English words "economy" and "economics" can be traced back to the Ancient Greek, Greek word (i.e. "household management"), a composite word derived from ("house;household;home") and νέμω ("manage; distribute;to deal out;dispense") by way of ("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 1650s.


History


Ancient times

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 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. 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 (mathematics), metric 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" in the most specific sense is money Image:National-Debt-Gillray.jpeg, In a 1786 James Gillray caricature, the plentiful money bags handed t ...
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 Freeholder (government), freeholders. The economic discussion was driven by scarcity.


Middle ages

In 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 what we now call venture capital (from ''ventura'', ital.; ''risk'') to finance their captures. The Capital (economics), capital should be refunded by the goods they would bring up in the New World. The discoveries of Marco Polo (1254–1324), Christopher Columbus (1451–1506) and Vasco da Gama (1469–1524) led to a first globalization, global economy. The first Company, enterprises were trading establishments. In 1513, the first stock exchange was founded in Antwerpen. Economy at the time meant primarily
trade Trade involves the transfer of goods or services from one person or entity to another, often in exchange for money. Economists refer to a system A system is a group of Interaction, interacting or interrelated elements that act according to ...
.


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 secularization in 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 work. Bankers like 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.


Industrial Revolution

The first economist in the true modern meaning of the word was the Scotsman 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: Product (business), 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 Human overpopulation, overpopulation. The 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 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 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 (economics), Production, production and division of labor enabled the mass production of Good (economics), goods.


Recognition of the concept of “the economy”

The contemporary concept of "the economy" wasn't popularly known until the American 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 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 most of the countries the economic system is called a social market economy.


Late 20th – beginning of 21st century

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 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 history, ancient economy was mainly based on subsistence economy, subsistence farming. * The industrial revolution 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, finance, and
technology Technology ("science of craft", from Ancient Greek, Greek , ''techne'', "art, skill, cunning of hand"; and , ''wikt:-logia, -logia'') is the sum of Art techniques and materials, techniques, skills, Scientific method, methods, and Business proc ...
—the knowledge economy. In modern economies, these phase precedences are somewhat differently expressed by the three-sector theory. * Primary sector of the economy, 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 sector of the economy, 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 industry (economics), industries). Their separate evolution during the Industrial Revolution phase is dealt with elsewhere. * Tertiary sector of the economy, Tertiary stage/degree of the economy: Involves the provision of services to consumers and businesses, such as baby-sitting, film, cinema and banking. (A shopkeeper and an accountant would be workers in the tertiary degree.) * Quaternary sector of the economy, 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 : * 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 social sector or voluntary sector.


Economic measures

The main indicators used to monitor the performance of an economy are: * Consumer spending * Exchange rate * Gross domestic product * GDP per capita * GNP * Stock Market * Interest rate * Government debt * Inflation, Rate of Inflation * Unemployment * Balance of Trade


GDP

The GDP (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 and GDP per capita. While often useful, GDP only includes economic activity for which money is exchanged.


Informal economy

An informal economy is the set of economic activities operating as to partially avoid being taxed or regulated, in contrast to 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 that 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 "underground", "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

Economic research is conducted in fields as different as Agricultural, Development, Econometrics, Environmental, Game theory, Industrial Organization, International, Labor, Macroeconomics, Mathematical, Monetary, Public, Regional and Urban, Education, and Economics History.


See also

* Business ethics * Capitalism * Ecological economics * Econometrics * Economic equilibrium * Economic history (includes list by country) * Economic system * Economic union * Economics education * History of money * List of economic communities * List of economists * List of free trade agreements * Macroeconomics * Microeconomics * Non-market economics * Socialism * Supply and demand * Thermoeconomics * World economy


References


Bibliography

* Aristotle, Politics, Book I-IIX, translated by Benjamin Jowett
Classics.mit.edu
* Barnes, Peter, Capitalism 3.0, A Guide to Reclaiming the Commons, San Francisco 2006
Whatiseconomy.com
* Dill, Alexander, Reclaiming the Hidden Assets, Towards a Global Freeware Index, Global Freeware Research Paper 01-07, 2007
Whatiseconomy.com
* Fehr Ernst, Schmidt, Klaus M., The Economics Of Fairness, Reciprocity and Altruism - experimental Evidence and new Theories, 2005, Discussion PAPER 2005-20, Munich Economics
Whatiseconomy.com
* Marx, Karl, Engels, Friedrich, 1848, The Communist Manifesto

* Stiglitz, Joseph E., Global public goods and global finance: does global governance ensure that the global public interest is served? In: Advancing Public Goods, Jean-Philippe Touffut, (ed.), Paris 2006, pp. 149/164,
GSB.columbia.edu
* Where is the Wealth of Nations? Measuring Capital for the 21st Century. Wealth of Nations Report 2006, Ian Johnson and Francois Bourguignon, World Bank, Washington 2006
Whatiseconomy.com


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'', 1776. {{Authority control Economy, Main topic articles