A Brief History of Economics illustrates how the ideas of the great economists not only influenced societies but were themselves shaped by their cultural milieu. However, in the last decade or so, economics has undergone an impressive evolution. Economic principles haven’t changed. But economists’ applications of these principles have. There are three key features of contemporary economics:
First, economics has refocused its energies on the “big questions” of political economy and, closely related, is increasingly turning to insights from other social sciences to search for these questions and their answers. Second, economics has largely abandoned “grand theorizing” for more empirically-minded projects. Although formalism is still prominent in economics, increasingly this formalism manifests itself via empirical techniques as opposed to novel theory. In particular, the empirical focus of contemporary economics is driven by the renewed importance attached to understanding institutions.
Finally, the face of modern economics has been dramatically altered by the rise of “freakonomics”—the application of economic principles to unusual and unorthodox issues. Freakonomics is characterized not only by its provocative applications of economic concepts, but also by the fact that it is consumable by a popular, lay audience, which is increasingly exposed to the economic way of thinking. These three trends are not separate and independent evolution within economics. Rather, they are interrelated in several respects. These changes are positive ones for economic science.
Meaning of economics
No one has ever succeeded in neatly defining the scope of economics. The term economics, from the Greek oikonomika, means a science or art of managing the household. In modern usage, it refers to the efficient allocation of scarce resources in the production, distribution, and consumption of goods and services to satisfy various desires.
In the 20th century, English economist Lionel Robbins defined economics as “the science which studies human behaviour as a relationship between (given) ends and scarce means which have alternative uses.” In other words, Robbins said that economics is the science of economizing. While his definition captures one of the striking characteristics of the economist’s way of thinking, it is at once too wide (because it would include in economics the game of chess) and too narrow (because it would exclude the study of the national income or the price level).
HISTORICAL DEVELOPMENT OF ECONOMICS
The effective birth of economics as a separate discipline may be traced to the year 1776, when the Scottish philosopher Adam Smith published An Inquiry into the Nature and Causes of the Wealth of Nations. There was, of course, economics before Smith: the Greeks made significant contributions, as did the medieval scholastics, and from the 15th to the 18th century an enormous amount of pamphlet literature discussed and developed the implications of economic nationalism (a body of thought now known as mercantilism). It was Smith, however, who wrote the first full-scale treatise on economics and, by his magisterial influence, founded what later generations were to call the “English school of classical political economy,” known today as classical economics.
Neoclassical economics: antecedents and personalities
Modern economics is generally dated from the classical economics writings of Adam Smith and David Ricardo. ‘If we were to summarise the distinguishing characteristics of the economic analysis contained in the ‘Wealth of Nations’ [written by Smith] or in Ricardo’s ‘Principles’, we should have to put first the insight which it reveals into the economic mechanism of modern society. With extreme rigour the analysis lays bare the principles which underlie the working of the capitalist system, together with the historical development which produced it. To this Ricardo also added an attempt to discover the trend of the system’s future development. Its second claim to distinction lies in the fact that it was the first to recognise explicitly that social phenomena, including history, had laws of their own which could be discovered … which gives to the work of Smith and Ricardo its scientific imprint.’ Roll (1954) p. 140.
Smith, together with disciples such as James Mill and John Stuart Mill, and critics, such as Thomas Malthus, are often referred to as the classical economists. Their view of the world was characterised by an attempt to discover objective truths and laws of capitalism, much as scientists searched for the laws of nature.
The second phase in economics introduced what might be termed neoclassical economics and began in Europe around the 1870s.
The third phase in economics continues to this day. The economic depression of the 1930s accelerated the search for economic theories that could explain the world of the 20th century. This led to the development of the theory of monopoly and imperfect competition.
EVOLUTION OF ECONOMICS AS A DISCIPLINE
The study of the economy in western civilization was begun largely with the Greeks, particularly Aristotle (384-322 BC) and Xenophon (420?-355? BC). The ancient economic thinkers concerned with the theories of money, Taxation, usury, property rights, Entrepreneurship, Price differentials, Justice in economic exchange and analyzed the impact of ethics in economics.
Famous economists of the ancient school include St. Thomas Aquinas(1225-1274?), John Duns Scotus (1265-1308), Jean Buridan (1295 – 1358), Jean Buridan, (1295 – 1358), Nicole de Oresme, (1320-1382),Gabriel Biel, (1425-1495), Sir William Petty (1623-1687).
The classical economists developed the theories about how markets and market economies work focusing the dynamics of economic growth which stressed economic freedom and promoted ideas such as laissez-faire and free competition. They introduced the labor theory of value, theory of distribution (Smith), Principles of Political Economy and Taxation ((Ricardo 1817, Mill 1848), the theory of surplus value(Karl Marx), principle of comparative advantage ,international-trade theory (Ricardo) and Monetary theories.
Famous economists of the classical school include Adam Smith, David Ricardo, W. Jevons, Jean-Baptiste Say, John Stuart Mill, Thomas Malthus, Professor Pigou, and Alfred Marshall.
Neoclassical economists first introduced the theories of Rationality & individual preferences, utility maximization (Utilitarianism, Jeremy Bentham) and Information economics, Theories of market forms and industrial organization, general equilibrium theory, indifference curves and the theory of ordinal utility. Neoclassical economics also increased the use of mathematical equations in the study of various aspects of the economy.
Famous economists of the Neoclassical school are William Stanley Jevons (Theory of Political Economy (1871), Carl Menger (Principles of Economics (1871), Leon Walras (Elements of Pure Economics (1874 – 1877), Joan Robinson (The Economics of Imperfect Competition (1933), Edward H. Chamberlin (the Theory of Monopolistic Competition (1933), Paul Samuelson and so on.
Modern economics has followed an hour-glass-shaped path over the past century. Originally a branch of moral philosophy, political economy up through the 19th century was a broad-ranging discipline that touched upon issues in history, politics, sociology, and philosophy.
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