History of Economics

History Of Economics

Economics is a broad subject and economists have applied several methods to arrive at conclusions relating to the economy. Economics has to consider various factors like society and the culture which molded the subject. These factors are the basics of economy which everyone in society should look forward to. History of economics and the initiatives put forward to measure them began with the various questions raised regarding the economy. The history of economics is closely related to Robert Fogel and Douglas C. North of the University of Chicago and University of Washington respectively. The central theme of North's approach was with regard to the difference between the rich and poor countries of the world. North was of the opinion that the formation of establishments and its influence on the development of economies over time created this difference. Establishments that affect the economy of a nation are formal systems like legal, constitutional, tax, regulation of the market and insurance and casual systems like ethics, behavior, belief, habits, ideologies and morals. Douglas C. North has encouraged economists to accept the influence of other factors or events. For example, the performance of an economy is related to the circumstance of the time and place. Hence the theory of economy can be studied with respect to the history of the world. (Canterbery, 8)

In the study of economics, the role of mathematical science and other topics with respect to man cannot be avoided. The inclusion of mathematics makes the study of economics a complex one and the inclusion of history restricts the overpowering influence of mathematics on economics. The influence of literature in instituting the behavior of the society towards economics is also noteworthy. The importance of literature has received a better position in the recent past. Certain contributions made by literature towards measuring the existing economics in a society have more precision and significance than the observations made by economists. Few economists of yesteryears were themselves writers, the prominent among them being Keynes. Others who were related to both economics and literature were Robert Heilbroner, Veblen and John Kenneth Galbraith. (Canterbery, 10)

The downfall of the Gold Standard, the uprising of Fascist corporatism in the western part of Europe, the five-year projects of Soviet Union, the Great Depression, the Bolshevik Revolution, the novel business set up of America and the socialization experiments of Austria and Germany revived the role of economists and found a place for them in extending the government decisions. A total revival of the role of economists came up with the Mandarin economists after the war. Their role was further strengthened with the release of the General Theory by John Maynard Keynes in the year 1936. This ideology of government was immediately put in place to resolve all the issues related to the economy. Many parts of Europe, Germany, Britain and France adhered to the guidelines of economists and drafted the welfare state notion to find a stable method to operation the financial functions. This paved way for various norms and reforms in the industrial sector, trade alliances and smartly utilized their banks and treasury to make the economic plan in an equilibrium state. (the History of Economic Thought)

The utilization of government resources like capital and well planned norms for trade between nations assisted in a surprising development of the economy. The strategies of economists gained further importance when colonies turned out to become independent countries which took advantage of economist policies. This success of economists in their role towards government oriented plans resulted in their demand for international organizations like the International Monetary Fund, the United Nations and the World Bank. This situation took an overturn with the depression in the economy during the 1970's and 1980's. Totally new types of economist were required at this stage to create a revival of the declining economy. Economists who were equipped with policies to meet the supply of financial aids were specifically required to reverse the situation of the conservative government. However, the role of economists deteriorated with the emergence of privatization of government owned enterprises around the world which also affected the face of the socialists worldwide. Economists were then restricted to their function in commercialized banks which was based on observation and predictions. (the History of Economic Thought)

The success of an economist lies in his efficiency to influence the society with his arguments. The use of notes, pamphlets and letters by various economists stands proof to this phenomenon. The contribution of economists during the English Industrial Revolution paved way for the twelve hour employment and the employment of children in industries. Economists in the past had to work with insufficient information and so they could not support their arguments with statistics. Instead they had to detail the reasons for a specific rise or fall in the economy. The evaluation of pessimists like Thomas Malthus who studied the relation between population and the availability of food proves this point, which showed that the increase in population in one area, like cities or towns can result in the non-availability of food. (Canterbery, 11)

David Ricardo was a more influential person than Malthus who argued in favor of industrialists, and he had the added advantage of being a member of the Parliament. Other than the oratory skills of economists, they have passed down the scheme of analyzing economic patterns. Hence it is obvious that we should learn more about the social and intellectual side of the thought applied by the economists. The criticism which accrues to the economists relates to their inefficiency in showcasing the importance of the economy under observation. This is because some economists do not consider the facts established by their forerunners and make a totally new approach to the system. After so many years of research and analysis there is no one common system which is jointly accepted by the whole world. (Canterbery, 11)

The characteristics of economics remain to be a vague idea even today. However the lack of clarity is not a feature which is exclusive to economics, since it is witnessed in all subjects. The analysis of the perfect method to understand a subject has remained an important issue for philosophers from the Greek period onwards. A number of scientists and thinkers have worked hard to find a solution to this question. The method of understanding a subject requires a step-by-step scientific procedure. Each and every step of analysis is a continuation of the previous finding and so none of these methods is considered to be an isolated one. Methodology has been a topic of interest for philosophers as well as authors of social and natural sciences. This interest has not spared the field of economics also. Many have indulged in research to understand the approach and epistemology relating to economic science. The most important objective of the economic analysts has been to find a process to understand the causes of change in the market and thereby improve the field of economics, to carry out profit winning changes to the institution of economy. (Chapter 2: A Problem of Knowing)

Our thoughts at any point of time are based on wisdom, information, facts and knowledge which are entirely different concepts. The difference lay basically in the meaning of the words. An observation into the Latin meaning of the words will give us a better idea about the words in question. Factum means some function completed, and facere means to perform a function. Information means collection and arrangement of details in a systematic way by classifying various details into specific titles. Knowledge means the connection between various facts and information. Wisdom is a complex word and implies the scheme of values and the decision to use knowledge. These explanations are however trivial and is related to the users interpretation. Various methods can be used to derive information and conclusion of knowledge. Instinct, perception, reduction, introduction and the ability to create data are examples of the basis of knowledge. However, knowledge should be backed by empirical as well as sensible way of thinking. Earlier, instinct, perception and introspection were significant factors to make a judgment about information though it was later judged as insignificant factors with respect to knowledge. (Chapter 2: A Problem of Knowing)

Economic theory is considered to be a set of tools by certain analysts. These tools can be used to derive interesting opinions and it is also a combination of tools that includes deliberate statements of economic theory. (Samuels; Henderson; Johnson; Johnson, 71) it is a well-known fact that economics is a difficult subject and this is the reason as to why economists are highly sought after so that they can simplify the details into simpler forms which everyone can understand. Certain economists followed a linear method approach with the objective of determining and solving certain data. Classical statistical examinations are normally adopted by this method. Formal observation methods are used to reduce the data in a very significant manner when compared to the informal methods. Thus formal methods have a collection of equations which used for the compression of data. These methods are then examined with respect to future events using empirical observations and statistical tools. (History of Economics Society, 25)

It has to be accepted that such a method has been used to arrive at various conclusions. A lot of dedication is required by thinkers to derive the facts out of the information available. This concept of economics is not drawn out of nothing, but it has been derived from facts, and scientists have toiled to put together the casual details into formal approaches. Formal methods reduce the details in a systematic manner and so this is preferred than the informal method. However those is favor of the scientific method were against the formal method and argued that formal methods were not reliable since it was not sure whether the important aspects of the fact would be retained while reducing the information available. (History of Economics Society, 25)

History of economics has always raised debates whether economics is a science that maintains the importance of the information even if it is reduced. The debate is between the mathematical side of information and the non-mathematical ancient method and the difference between this is creating a divide in the heterodox / mainstream methods. Complexity is related to mathematics and requires the reduction of data. This kind of reduction results in a non-determined answer. In short, it may be said that mathematics cannot support the formation of economics effectively if it is used alone. With the invention of modern gadgets like computer, the complex methods of deriving data related to economics has become easy. Hence technology has taken over the task of solving complex economic data into simpler ones which provides an insight into any kind of issues. The difference between complex economics and standard economics is the method by which the details are derived. Standard economics is related to simple observable details which has solution for economic problems. This can also be used to analyze various types of cases that arise from time to time. Complexity method can be used to find varying types of data with no targeted solution and depends on the computer to find the most suitable approach that can be used to compress a data. A random collection of data can be fixed into an approach using this method though it is of no specific use to economics. (History of Economics Society, 25)

Inductive reasoning is the method of observing data using empirical methods and statistical observation is the process of using the inductive approach. This method however has some drawbacks. Here analysis of information may be partial or the decision of the observer will be partial. Hence this method requires precaution to reach the right decision. Deductive reasoning begins with common schemes of logic wherein the decision is concluded by deducting information about a particular incident. This is otherwise known as rationalism. Abductive reasoning is the method where a hypothesis is created. This method is identical to induction. Abduction is a casual method which involves intuition, analysis, deductive reasoning, knowledge and leads to the formation of hypotheses which can be right or wrong since the reasoning factor is less in this method. (Chapter 2: A Problem of Knowing)

Western culture has accounted for a number of methods which contribute to the structure of knowing. These methods were formed by several aspects. The method of knowing can be compared to a technology. While economists analyze the past methods, new method of knowing was formed. Methods that are related to future forecasts gives good results in conformity to or a continuous approach in connection with a society and this is more likely to be recognized and incorporated by the social system. The method used to inform the approach and ideas will impact the formation of the ideas of knowing. Robert Ornstein and James Burke have given a short note on the development of the Western scheme of knowing in the Axemaker's Gift. Their findings revealed that every step taken towards development to make the society grow to a high standard or security resulted in the progress of the world. (Chapter 2: A Problem of Knowing)

With the developments in the world, there will be a corresponding change in the thought of people. Bronowski states that the schemes developed by thinkers in the medieval period have resulted in the formation of a hierarchy to the scheme of order. The theory of probability gives the approach by which complicated information can be explained. The onset of Western Culture is usually related to the Greeks. Their involvement towards the evolution of economic ideas and the creation of a scheme to learn knowledge is referred to as the approach towards an insight into knowing. The hypothesis of economics and specifically the in depth observation of trivial ideas to explain and observe various economic methodology were contributed by the Greeks. It is a skill to transform trivial ideas into various useful patterns of observation. These patterns are employed to record information. (Chapter 2: A Problem of Knowing)

The contribution of Pythagorus, Archimedes and Euclid in the field of mathematics lead to the formation of tools to record information. Plato has also made reasonable contributions to economics and the science of knowing. He was a student of the great thinker Socrates. He has created an impact on the scheme of knowing. His hypotheses on economics state that the visible world was a vague picture of the invisible world and the static forms. Later, Plato also stated that the world should be analyzed through the use of intelligence and not by the eyes alone. Plato worked towards a theory that connected economics, law, ethics, arts and politics. Aristotle was a student of Plato and the teacher of Alexander the Great. His theories have created considerable impact on the Western Economic thought. (Chapter 2: A Problem of Knowing)

Syllogistic theory is the most significant aspect given by Aristotle. It is observed as a valid reducing scheme with no unwanted conditions. It is a scheme of norms that speaks about reasoning. This system speaks about the sequence of events and its outcomes on economics. Here man is considered to be a coherent being and consumers are substantiated as man and the final theory is that all consumers are coherent. In the beginning of the medieval period, Saint Augustine and his disciples created an interest to imbibe secularism in the society. They also advocated the preservation of knowledge and information which lead to the maintenance of power. It was later said that all information and knowledge is acquired from the nature and this can be deducted into various parts for further analysis. This method is employed by economics while using Utilitarianism to the microeconomic approach. (Chapter 2: A Problem of Knowing)

After the period of Saint Augustine, the Franciscan movement was started by St. Francis of Assissi that took measures to eradicate the poor and put in place the idea of brotherhood. At this point of time there was a mixture of religion with economics. Saint Thomas advocated that private assets can be held by people and that it would contribute towards the progress of the society, though he pointed out that the use of private business to make lucrative profits would be regarded as a sin. He also prophesized that assets held by a person should be available for general use in times of need and he even went on to justify that robbery if conducted was due to utmost requirement. Private enterprises also came under question. The question was with regard to the profits earned by a businessman from changing the cost of goods. The Scholastic approach was in favor of such profit and justified saying that business was not conducted for such a profit and that it was to meet the cost of the work done. Further, the business was carried on to provide assistance and meet the common welfare of the people. (the History of Economic Thought)

According to the Salamanca School of economic thought, the wish of God was to put men at work worldwide where they transact business and familiarize among them to reach the ultimate goal of brotherhood. This school of thought was however against the Mercantilist thought which encouraged war for the sake of business. However, Aristotle's theory stood for justifiable price of goods with respect to its actual value which would assist humanity. The rules of Roman economics were friendlier. It states that the price was justifiable if the buyer agreed to pay that price for the goods. This rule of Romans, however, did emphasize on the value of the goods. The utility of a product was also a much debated issue. Justum pretium which means just price of a product was further explained as the price expected by a person on purchase and it is to be the price offered to a buyer. This theory was stated by the Golden Rule. (the History of Economic Thought)

The utility of a product is also justified with this theory. But a certain argument states it leads to the varying utility of a product and this was solved by the Salamanca economic thought. It said that the best price of a product is nothing but the price fixed to transact a product and there is no question after that. If a product falls under the viable group, a seller cannot make profits beyond the utility of the product to the user and cannot undersell them based on their utility. Besides utility, the value of a product was also judged. For instance, diamonds which had no use fetched more price than water which is of utmost utility. Hence the factor of mystery as against use evolved for the high price of a useless product. Other forms of profit that gave way for a debate was the interest charged on borrowings. (the History of Economic Thought)

The classical School of Economics was formulated around 1750 and has remained to be the core of the economic concept till the end of 1800. The publication of 'Wealth of Nations' by Adam Smith is referred to as the starting period of Classical Economics though it turned out to be a sophisticated piece of work over time. This economic thought had ideas from the principles of Mercantilist, Physiocracy, classical liberalism, enlightenment and the beginnings of the industrial uprising. Adam Smith is considered to be the creator of Classical Economics and John Stuart Mill is considered to be the further developer of this economic thought. This economic thought occupied great significance till the end phase of the Marginalist Reform and at the start of the Neoclassical Economics which was during the period of 1800. Ideas for the neoclassical economics included the aspect of marginal use and this thought was contributed by Carl Menger and Stanley Jevon. Another aspect attached to the Neo-classical economics has been the idea of common stability which was contributed by Leon Walras. (Classical School of Economics (1776-1871): An Outline)

Further ideas for the measures of economics under this thought were given by Alfred Marshall, Henry Sidgwick, Vildredo Pareto and F.Y.Edgeworth. Neoclassical thought is a continuation of the Classical thought with a change in the idea of question and the measures used to observe the economy. Despite Neoclassical thought having an edge over Classical thought, the latter has continued to impact modern economics and specifically the New Classical Economics. The idea of a free market is the core strategy of both neoclassical as well as classical thoughts. Though Adam Smith is considered to be the creator of economics, David Ricardo was responsible for substantiating the approach of this economic thought. The argument between David Ricardo and Thomas Malthus on the projects like Poor Laws and Corn Law was responsible for promoting the importance of this type of economic thought. While Adam Smith was more focused on the type of economic growth, Ricardo, Malthus and other economists concentrated on the question of supply. The only common argument of all the economists of the time was whether a situation of excess would arise. The two economists who advocated the notion of excess and its impact on the economy was Jean Baptiste Say and Malthus. (Classical School of Economics (1776-1871): An Outline)

Ancient economics of the United States was usually explained as a hypothesis which was not clear to anyone and that which did not create a matter of interest. This theory was more monolithical in nature with lots of theory. Statements such as this were given by economists who did believe in the theory part of it but those who were interested in numbers. New theories and approaches however continued to come up in various parts of the world. (Samuels; Henderson; Johnson; Johnson, 71)