Economy

• 1. Introduction

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  An economy begins the moment someone makes, supplies, or distributes a good or service. That is the whole threshold. No currency, no market, no government is required. The source defines an economy as an area of production, distribution, trade, and consumption of goods and services. It is also something larger than money. Monetary transactions account for only a small part of what the source calls the economic domain. So what is the rest of it? If buying and selling is only a sliver, what makes up an economy, and why did people not even use the word in its modern sense until surprisingly recently? The answers run from a measure of barley in Mesopotamia to a Scottish thinker who turned self-interest into a foundation for an entire field.

• 2. A Social Domain

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  Monetary transactions, the source insists, are only a small part of the economic domain. The bigger picture is a social domain that emphasizes the practices, discourses, and material expressions tied to producing, using, and managing resources. An economy never stands alone. The source lists the factors that give it context and content: culture, values, education, technological evolution, history, social organization, political structure, legal systems, and natural resources. These set the conditions and parameters in which an economy functions. Economic agents can be individuals, businesses, organizations, or governments. A transaction happens when two parties agree on the value or price of a good or service, commonly expressed in a currency. Underneath all of it sits production, which draws on natural resources, labor, and capital. That production has shifted over time through technology and innovation, and through changes in industrial relations, most notably child labor being replaced in some parts of the world with universal access to education.

• 3. A House To Manage

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  The English word economy traces back through Middle French yconomie and Medieval Latin oeconomia. Both descend from the Ancient Greek oikonomia, or oikonomos. The word splits in two. Oikos means house, and nemein means to manage. So at its root, economy is the management of a household. The meaning most people reach for today, the economic system of a country or an area, is a latecomer. The source says that sense seems not to have developed until the 1650s. A word about managing a single home stretched, across centuries, to describe the production of entire nations.

• 4. Barley And Shekels

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  Sumer built a large-scale economy based on commodity money. The Babylonians and their neighboring city states went further, developing what the source calls the earliest system of economics as we think of it, with rules and laws on debt, legal contracts, and law codes for business practices and private property. They built the first known codified legal and administrative systems, complete with courts, jails, and government records. The ancient economy rested primarily on subsistence farming. The shekel marks a first: a unit of weight and currency used by the Semitic peoples. The term came from Mesopotamia circa 3000 BC and referred to a specific mass of barley, which related other values such as silver, bronze, and copper. A barley shekel was both currency and weight, much as the British Pound originally denominated a one-pound mass of silver. Most goods, though, changed hands through social relationships, with traders bartering in the marketplaces. In Ancient Greece, the very place the word economy came from, many people were bond slaves of the freeholders, and economic discussion was driven by scarcity.

• 5. Risk And Nations

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  In the Middle Ages, what we now call an economy sat not far from subsistence level, with most exchange happening within social groups. The great conquerors raised what we now call venture capital, from the Italian ventura, meaning risk, to finance their captures. The idea was simple: the capital would be repaid by the goods brought back from the New World. The voyages of Marco Polo, who lived from 1254 to 1324, Christopher Columbus, 1451 to 1506, and Vasco da Gama, 1469 to 1524, led to a first global economy. The earliest enterprises were trading establishments, and in 1513 the first stock exchange was founded in Antwerp. Economy at that time meant primarily trade. Then captures became colonies, branches of the European states. The rising nation-states of Spain, Portugal, France, Great Britain, and the Netherlands tried to control trade through custom duties and mercantilism, from the Latin mercator, merchant, a first attempt to mediate between private wealth and public interest. Secularization let states put the church's immense property toward building towns, and the influence of the nobles fell. The first Secretaries of State for economy began their work. Bankers like Amschel Mayer Rothschild, 1773 to 1855, started financing national projects such as wars and infrastructure. From then on, economy meant national economy.

• 6. The First Economist

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  Adam Smith, the Scotsman who lived from 1723 to 1790, was the first economist in the true modern meaning of the word. He drew partly on physiocracy, itself a reaction to mercantilism, and on the later economics student Adam Mari. Smith defined the elements of a national economy. Products are offered at a natural price generated by competition, by supply and demand, and by the division of labor. The basic motive for free trade, he argued, is human self-interest. That self-interest hypothesis became the anthropological basis for economics. Thomas Malthus, 1766 to 1834, carried supply and demand into the problem of overpopulation. Around them ran the Industrial Revolution, a period from the 18th to the 19th century when major changes in agriculture, manufacturing, mining, and transport reshaped socioeconomic and cultural conditions. It began in the United Kingdom, then spread through Europe, North America, and eventually the world. The source calls its onset a major turning point in human history. In Europe, wild capitalism began to replace mercantilism, and the system of production and division of labor enabled the mass production of goods.

• 7. Naming The Economy

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  The contemporary concept of the economy was not popularly known until the American Great Depression in the 1930s. After two World Wars and that depression, policymakers hunted for new ways to steer the economy. Friedrich August von Hayek, 1899 to 1992, and Milton Friedman, 1912 to 2006, argued for global free trade and are supposed to be the fathers of neoliberalism. The prevailing view, though, belonged to John Maynard Keynes, 1883 to 1946, who wanted stronger state control of markets. The idea that the state can ease economic problems and spark growth by manipulating aggregate demand is called Keynesianism in his honor. In the late 1950s, growth in America and Europe, often called the Wirtschaftswunder, the German economic miracle, produced a mass consumption economy. In 1958, John Kenneth Galbraith, 1908 to 2006, became the first to speak of an affluent society, in his book The Affluent Society. In most countries the system came to be called a social market economy. Later, with the fall of the Iron Curtain and the Eastern Bloc's transition toward democratic government and market economies, the post-industrial society gained importance, marking the rise of the service sector over industrialization. The source credits the term variously to Daniel Bell's 1973 book The Coming of Post-Industrial Society and to social philosopher Ivan Illich's Tools for Conviviality. After 2000 to 2001, the spread of the Internet made room for the information economy, and by the late 2000s, the economies of China, Brazil, and India drew interest away from Western-type models.

• 8. Kinds And Layers

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  A market economy produces and exchanges goods and services according to supply and demand, through barter or a medium of exchange such as a unit of currency. A planned economy, by contrast, lets political agents directly control what is produced and how it is sold and distributed. The source names others too. A green economy is low-carbon and resource efficient, driven by investments that cut carbon emissions and pollution and prevent the loss of biodiversity. A gig economy assigns or chooses short-term jobs on demand. An informal economy is neither taxed nor monitored by any government, and a local economy centers on a particular settlement or commercial area. Economies also layer into sectors. The three-sector model splits them: primary, which extracts and produces raw materials like corn, coal, wood, and iron; secondary, which transforms those materials into goods, such as steel into cars or textiles into clothing; and tertiary, which provides services like baby-sitting, cinema, and banking. Beyond these run the public sector, the private sector, and the voluntary sector. To measure the whole, analysts lean on gross domestic product, the monetary measure of the market value of all final goods and services produced, alongside GDP per capita and median income. Real values like real GDP are adjusted for inflation, while nominal values are not, and the study of it all divides into macroeconomics, examined at regional and national levels, and microeconomics.