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The economy: concept and history
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An economy consists of the economic system of a country or other area, the labor, capital and
landresources, and the economic agents that socially participate in the production, exchange,
distribution, and consumption of goods and services of that area. A given economy is the end
result of a process that involves its technological evolution, history and social organization, 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.
Today the range of fields of study examining the economy include social sciences such as
economics, sociology (economic sociology), history (economic history) 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, range
from engineering to management and business administration to applied science to finance.
All kind of professions, occupations, economic agents or economic activities, contribute to the
economy. Consumption, saving and investment are core variable components in the economy
and determine market equilibrium. There are three main sectors of economic activity: primary,
secondary and tertiary.

Contents
[hide]
• 1 Etymology
• 2 History
○ 2.1 Ancient times
○ 2.2 Middle ages
○ 2.3 Early modern times
○ 2.4 The industrial revolution
 ○ 2.5 Communism and its view of capitalism
○ 2.6 After World War II
○ 2.7 Postmodern economy
• 3 Economic sectors
• 4 Economic measures
○ 4.1 GDP
• 5 Informal economy
• 6 The largest economies by GDP (millions of USD)
• 7 See also
• 8 Endnotes
• 9 References
• 10 Further reading

[edit] Etymology
The English words "economy" and "economics" can be traced back to the Greek words
οἰκονόμος "one who manages a household" (derived from οἴκος "house", and νέμω "distribute
(especially, manage)"), οἰκονομία "household management", and οἰκονομικός "of a household or
family". The first recorded sense of the word "economy", found in a work possibly composed in
1440, is "the management of economic affairs", in this case, of a monastery. Economy is later
recorded in more general senses including "thrift" and "administration". The most frequently
used current sense, "the economic system of a country or an area", seems not to have developed
until the 19th or 20th century.[1]
[edit] History
[edit] Ancient times
As long as someone has been making 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.[2]
The Babylonians and their city state neighbors developed forms of economics comparable to
currently used civil society (law) concepts.[3] They developed the first known codified legal and
administrative systems, complete with courts, jails, and government records.
Several centuries after the invention of cuneiform, the use of writing expanded beyond
debt/payment certificates and inventory lists to be applied for the first time, about 2600 BC, to
messages and mail delivery, history, legend, mathematics, astronomical records and other
pursuits. Ways to divide private property, when it is contended... amounts of interest on debt...
rules as to property and monetary compensation concerning property damage or physical damage
to a person... fines for 'wrong doing'... and compensation in money for various infractions of
formalized law were standardized for the first time in history.[2]
Greek drachm of Aegina. Obverse: Land turtle / Reverse: ΑΙΓ(INA) and dolphin. The oldest
turtle coin dates 700 BC
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. Aristotle (384-322 B.C.) was the first to differentiate between a use value
and an exchange value of goods. (Politics, Book I.) The exchange ratio he defined was not only
the expression of the value of goods but of the relations between the people involved in trade.
For most of the time in history economy therefore stood in opposition to institutions with fixed
exchange ratios as reign, state, religion, culture, and tradition.[citation needed]
[edit] Middle ages
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.[citation needed] The discoveries of
Marco Polo (1254–1324), 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
[edit] Early modern times
The European captures became branches of the European states, the so-called colonies. The
rising nation-statesSpain, 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.
[edit] The industrial revolution
The first economist in the true meaning of the word was the Scotsman Adam Smith (1723–
1790). 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 United States
of America became the place where millions of expatriates from all European countries were
searching for free economic evolvement.
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.
[edit] Communism and its view of capitalism
Starting in England, simultaneous processes of mechanization, and the enclosures of the
commons, led to increases in wealth for the controllers of capital, and mass poverty, starvation,
urbanization and pauperization for much of the population[citation needed]. This led some, such as Karl
Marx (1818–1883) and the German industrialist and philosopherFriedrich Engels, (1820–1895)
to describe economy as the "system of capitalism".
Capitalism is characterized by the division of labor between worker and capitalist, in which the
means of production are separated from the direct producers and are instead owned by a
parasitical capitalist class. Marx and Engels believed that under capitalism, the working class
produces surplus value, of which only a small percentage is returned to workers in the form of
wages to provide for their bare subsistence. The rest of the surplus value is kept as profit, and is
reinvested into the commodity cycle by the capitalist. The competitive forces of the market will
drive capital to constantly accumulate "for the sake of more accumulation", resulting in
monopolies, economic crisis and imperialism.
Marx and Engels viewed capitalism as a historically-specific mode of production, as with
feudalism and hunter-gatherer societies, embedded with its own internal contradictions.
Capitalism is the first mode of production in which the direct producers have no control over
their conditions of labour or the means of production.
The declining living conditions of the working class would drive workers to collectively fight
back as part of a class struggle, eventually overthrowing the capitalist state in a proletarian
revolution and establishing a democratically planned economy, in which production is controlled
by the direct producers themselves - the proletariat - in order to satisfy human needs, not
accumulation of profits. Thus in the Communist Manifesto, Marx and Engels state that
capitalism, in bringing to existence an urbanized working class, has created its own
"gravediggers", as well as the material conditions and abundance ripe for a classless socialist
society.
The first centrally planned economy was established after the Russian Revolution of 1917, led by
the Bolshevik Party, in which production (and social life) was organized around workers'
councils called soviets. Similar councils of democratically elected recallable worker delegates
have existed in subsequent revolutions and revolutionary situations throughout the 20th Century,
including the 1936 Spanish Revolution, the 1974 Carnation Revolution in Portugal, the 1979
Iranian Revolution and the 1980 Solidarity uprising in Poland.
[edit] 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.
[edit] Postmodern economy
What economist Robert Reich terms, "the not quite golden age" (WW II to the mid-1970s) gave
way to the current global economy, or supercapitalism.[4] This economic revolution took place in
tandem with a radical transformation of Western cultures, and the growth of
oligarchical/plutocratic tendencies within the polities of Western democracies.
Discussion of such issues as the politics of the World Bank, the World Trade Organization and
global players within the World Economic Forum, as well as global ecology and sustainability,
have all influenced the definition of economy.
Joseph E. Stiglitz has defined economy to be a global public good. Economists like Peter Barnes
and Alexander Dill are reclaiming the commons and providing definitions that embrace new
phenomena like freeware. Game theorists such as Ernst Fehr and Klaus M. Schmidt are
contradicting the notion of omnipresent economic self-interest. Under the gift economy extensive
grassroot movements have arisen; also the credit programs of Nobel laureate MuhammedYunus.
In 2006 the World Bank started issuing its Wealth of Nations Report, tracking social and human
capital.
[edit] Economic sectors
Main article: Economic sectors
The economy includes several sectors (also called industries), that evolved in successive phases.
• The ancient economy was mainly based on subsistence farming.
• The industrial revolution lessened the role of subsistence farming, converting it to more
extensive and monocultural forms of agriculture in the last three centuries. The economic
growth took place mostly in mining, construction and manufacturing industries.
• In the economies of modern consumer societies there is a growing part played by
services, finance, and technology—the (knowledge economy).
In modern economies, there are four main sectors of economic activity:[citation needed]
 • Primary sector of the economy: Involves the extraction and production of raw
materials, such as corn, coal, wood and iron. (A coal miner and a fisherman would be
workers in the primary sector.)
• Secondary sector of the economy: Involves the transformation of raw or intermediate
materials into goods e.g. manufacturing steel into cars, or textiles into clothing. (A
builder and a dressmaker would be workers in the secondary sector.)
• Tertiary sector of the economy: Involves the provision of services to consumers and
businesses, such as baby-sitting, cinema and banking. (A shopkeeper and an accountant
would be workers in the tertiary sector.)
• Quaternary sector of the economy: Involves the research and development needed to
produce products from natural resources. (A logging company might research ways to
use partially burnt wood to be processed so that the undamaged portions of it can be
made into pulp for paper.) Note that education is sometimes included in this sector.
Other sectors include the
• Public Sector or state sector
• Private Sector or privately-run businesses
• Social sector or Voluntary sector
[edit] Economic measures
There are a number of ways to measure economic activity of a nation. These methods of
measuring economic activity include:
• Consumer spending
• Exchange Rate
• Gross domestic product
• GDP per capita
• GNP
• Stock Market
• Interest Rate
• National Debt
• Rate of Inflation
• Unemployment
• Balance of Trade
[edit] GDP
The GDP - Gross domestic product of a country is a measure of the size of its economy. The
most conventional economic analysis of a country relies heavily on economic indicators like the
GDP and GDP per capita. While often useful, it should be noted that GDP only includes
economic activity for which money is exchanged.
[edit] Informal economy
Main article: Informal economy
An informal economy is economic activity that is neither taxed nor monitored by a government,
contrasted with a formal economy. The informal economy is thus not included in that
government's Gross National Product (GNP). Although the informal economy is often associated
with developing countries, all economic systems contain an informal economy in some
proportion.
Informal economic activity is a dynamic process which includes many aspects of economic and
social theory including exchange, regulation, and enforcement. By its nature, it is necessarily
difficult to observe, study, define, and measure. No single source readily or authoritatively
defines informal economy as a unit of study.
The terms "under the table" and "off the books" typically refer to this type of economy. The term
black market refers to a specific subset of the informal economy. The term "informal sector" was
used in many earlier studies, and has been mostly replaced in more recent studies which use the
newer term.
Micro economics are focused on an individual person in a given economic society and Macro
economics is looking at an economy as a whole. (town, city, region)
[edit] The largest economies by GDP (millions of USD)
2008 List by the International Monetary Fund[5]
Rank
Country GDP (millions of USD)
World 60,917,477[6]
18,387,785[6]
European Union
1 14,441,425
United States
2 4,910,692
Japan
3 4,327,448
China
4 3,673,105
Germany
5 2,866,951
France
6 United Kingdom 2,680,000
7 2,313,893
Italy
8 1,573,586
Brazil
9 1,601,964
Russia
10 1,572,839
Spain

[edit] See also

Business and economics portal
 • Ecological economics
• Economic history (includes list by country)
• Economic system
• Economics
• Economist
• History of money
• Non-market economics
• Primary sector of the economy
• Quaternary sector of the economy
• Secondary sector of the economy
• Tertiary sector of the economy
• Thermoeconomics
• world economy
[edit] Endnotes
1. ^Dictionary.com, "economy." The American Heritage Dictionary of the English Language,
Fourth Edition. Houghton Mifflin Company, 2004. 24 Oct. 2009.
2. ^ ab Sheila C. Dow (2005), "Axioms and Babylonian thought: a reply", Journal of Post Keynesian
Economics27 (3), p. 385-391.
3. ^ Charles F. Horne, Ph.D. (1915). "The Code of Hammurabi : Introduction". Yale University.
http://www.yale.edu/lawweb/avalon/medieval/hammint.htm. Retrieved September 14, 2007.
4. ^ Robert Reich, Supercapitalism: the Transformation of Business, Democracy and Everyday Life
(New York: Alfred A. Knopf, 2007)
5. ^International Monetary Fund, World Economic Outlook Database, October 2009: Nominal GDP
list of countries. Data for the year 2008.
6. ^ ab"Nominal 2008 GDP for the world and the European Union.". World economic outlook
database, October 2009. International Monetary Fund.
http://www.imf.org/external/pubs/ft/weo/2009/01/weodata/weorept.aspx?
sy=2008&ey=2008&scsm=1&ssd=1&sort=country&ds=.&br=1&c=001%2C998&s=NGDPD&g
rp=1&a=1&pr.x=27&pr.y=8. Retrieved 2009-10-01.

[edit] References
• Aristotle, Politics, Book I-IIX, translated by Benjamin Jowett, Classics.mit.edu
• Barnes, Peter, Capitalism 3.0, A Guide to Reclaiming the Commons, San Francisco 2006,
Whatiseconomy.com
• Dill, Alexander, Reclaiming the Hidden Assets, Towards a Global Freeware Index,
Global Freeware Research Paper 01-07, 2007, Whatiseconomy.com
• Fehr Ernst, Schmidt, Klaus M., The Economics Of Fairness, Reciprocity and Altruism -
experimental Evidence and new Theories, 2005, Discussion PAPER 2005-20, Munich
Economics, Whatiseconomy.com
• Marx, Karl, Engels, Friedrich, 1848, The Communist Manifesto, Marxists.org
 • Stiglitz, Joseph E., Global public goods and global finance: does global governance
ensure that the global public interest is served? In: Advancing Public Goods, Jean-
Philippe Touffut, (ed.), Paris 2006, pp. 149/164, GSB.columbia.edu
• Where is the Wealth of Nations? Measuring Capital for the 21st Century. Wealth of
Nations Report 2006, Ian Johnson and Francois Bourguignon, World Bank, Washington
2006, Whatiseconomy.com
[edit] Further reading
• Friedman, Milton, Capitalism and Freedom, 1962.
• Galbraith, John Kenneth, The Affluent Society, 1958.
• Keynes, John Maynard, The General Theory of Employment, Interest and Money, 1936.
• Smith, Adam, An Inquiry into the Nature and Causes of the Wealth of Nations, 1776 .
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