A Brief History of Economics
Economics is a social science that studies the production and distribution of goods and services. It often deals with topics such as household budgets, macroeconomic policies and business plans. The economic system is complex and ever changing, as its study requires knowledge from multiple disciplines like mathematics, political science and philosophy.
The roots of modern economic thought date back to the 1700s, when various economists wrote about the concept of value and utility. This included Adam Smith, a British philosopher, who wrote “An Inquiry into the Nature and Causes of the Wealth of Nations” where he applied utilitarianism to economics and coined the term “invisible hand”, referring to market forces. He also recognized the idea of a circular flow of income, from consumers to producers and back to consumers.
The 1800s saw a surge of new economic theories being developed, primarily with the works of David Ricardo and John Stuart Mill, who focused on mathematics and analytical aspects of economics. Karl Marx, a combination sociologist and economist, developed his own theory of class struggle and capital.
In the early part of the 20th century, maths and science were applied to economics, resulting in equation-based models. This resulted in the creation of classical economics and the development of the “Keynesian Revolution”. John Maynard Keynes theorised how public policy could be used to manage economic demand and expansion.
The 1950s and 1960s saw the emergence of neo-classical economics, which has evolved into the modern version. This theory takes an aggregate, or “big picture” approach and looks at economic decisions regarding supply and demand, as well as economic growth from a macro-scale view.
In the 1970s and 1980s, economic theories began to incorporate more behavioural aspects and the study of the impact of institutions on economic activity. This period also saw the evolution of “micro-economics”, an approach that focuses on understanding how households, firms and industry works and how decisions can affect their sector, as well as the entire economy.
Today, economics continues to focus on understanding how money accelerates economic institutions and transactions, as well as how it influences individual decision making. It continues to evolve and adapt to changes, while seeking to better understand the confusing and ever-changing world of money, business and human behaviours.
