In the past, economic activity was theorized to be bounded by natural resources, labor, and capital. This view ignores the value of technology (automation, accelerator of process, reduction of cost functions), and innovation (new products, services, processes, new markets, expands markets, diversification of markets, niche markets, increases revenue functions), especially that which produces intellectual property.
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. The largest national economy in the Americas is the United States, Germany in Europe, Nigeria in Africa and China in Asia.
A market-based economy is where goods and services are produced without obstruction or interference, 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 and at some free market or market clearing price. Capital and labor can move freely to any area of emerging shortage, signaled by rising price, and thus dynamically and automatically relieve any such threat. Market based economies require transparency on information, such as true prices, to work, and may include various kinds of immaterial production, such as affective labor that describes work carried out that is intended to produce or modify emotional experiences in people, but does not have a tangible, physical product as a result.
A command-based economy is where a central political agent commands what is produced and how it is sold and distributed. Shortages are common problems with a command-based economy, as there is no mechanism to manage the information (prices) about the systems natural supply and demand dynamics.
3.1 Ancient times
3.2 Middle ages
3.3 Early modern times
3.4 The industrial revolution
3.5 After World War II
3.6 Late 20th – beginning of 21st century
4 Economic phases of precedence
5 Economic measures
6 Informal economy
7 See also
10 Further reading
Today the range of fields of 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. Sabine O’Hara argues that care work is the basis for all economic activity, concluding that "everything needs care," not only people, but animals and things.
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 actually producing 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") and νέμω ("manage; distribute") 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.
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 property.
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 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. Economic discussion was driven by scarcity.
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 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 discoveries of Marco Polo (1254–1324),[dubious – discuss] Christopher Columbus (1451–1506) and 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 taxes in order to protect their national economy. The so-called mercantilism (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.
The industrial revolution
The first economist in the true meaning of the word was the Scotsman Adam Smith (1723–1790) who was inspired partly by the ideas of physiocracy, a reaction to mercantilism. 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 labour. 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 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, production and division of labour enabled the mass production of goods.
After World War II
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 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