Module 1
What is economics?
- Lionel robins: Economics is the science that studies human behavior as a relationship
between given ends and scarce means which have alternative uses.
The goals human(s) have are restricted by scarce means... which means there is
always a thing you cannot do because you must do something else... so there is a
opportunity cost.
- Alfred Marshall: economics is the study of mankind in the ordinary business of life.
He means how humans act in their daily lives that are full of decision to make.
- George Bernard Shaw: economics is the art of making the most out of life.
Full definition
- Economics studies how people use scarce factors of production(labour,land,capital) to
produce commodities and how these commodities are distributed in society for
consumption.
- Macroeconomic definition: Economics analysis trends in the business cycle such as inflation,
growth and unemployment and how the government and the people react on that cycle.
Fiscal government policy: taxation + controlling government spending.
Monetary government policy: Central bank regulations that controls the money
supply, interest rates and credit.
Economic challenges
Economic problems are around for forever, but till the 18 th century there were no economists around,
that’s because there were many primitive society’s where there was pressure of the natural or social
environment. Men have three Ways of ensuring continuity/organizing society:
- Customs and traditions: there was absolutely no mobility.
- Command and authority: a central person/state that dictates how society is organized.
- The market system: a decentralized economic system in which the profit motive is central for
everybody, and the prices are determined by demand and supply.
Economists study the market system and that’s the reason that Adam Smith is the
first economist.
Economic revolution: gradual process of changes.
- Emergence of centralized monarchies Rules and regulations of guilds were replaced by
national laws, common measurements, and standardized currencies.
,economics
Economics tries to inform us about the workings of the social order, which is capitalism.
- no Ceteris paribus-assumption so we can’t get better insight into complex situations.
when factors are constant
- it is never natural science because human behavior is unpredictable and ever changing.
- Not perfect, it has problems like extreme inequality.
Subjects related to economics (only read to refresh your information)
- Marketing: process of promoting and selling commodities or services by understanding and
meeting customer needs.
Marketing analysis marketing strategy: segmenting market and targeting the
specific segment marketing tactics.
- Macroeconomics: studying the market as a whole
National income: consumption + investments + government spending + export –
import
CPI: the value of goods in relation to the base year (inflation and deflation)
Inflation comes from too much money in the economy(supply) and too much
demand from commodities and services (demand)
3 forms unemployement:
Structual unemployement
Frictional unemployment: a job opening, and job seeker have not found each
other yet.
Cyclical unemployment: no demand skill of an employee.
- Finance: how to invest capital and where to invest capital in as a company but also
individually.
A company gets their money from stock-financing or debt-financing.
Risk averse investors are people that generally invest in bonds or interest from the
banks. But investors that are riskier infest in stocks. (more risk is an inherent
component of higher profits)
- Microeconomics: studying the choice of economic agents in relation of the scarce goods in
the market
Consumers: maximizing their satisfaction
Companies: maximizing their profits
Governments: maximizing overall welfare
- Accounting: recording of financial facts of a company, person, or government institution.
Plays a role on micro- and macroeconomics and it keeps an overview of a financial
position with the profits and losses, but there are a lot of accounting scandals with
non-credible information.
,Introduction time periods
The history of economic thought can be divided into distinct
time periods, each marked by unique societal challenges,
economic structures, and influential thinkers. This timeline
serves as a foundation for understanding how economic
principles evolved in response to the changing needs of society.
Every time has its own color, so that the thinkers and the times
they lived in are easy to distinguish and this is the order of the
document:
1. The context of each time period.
2. The school of thoughts + thinkers.
3. The important dates
4. The lives of important figures
,Ancient Greek time
- Agriculture was the base of peasants, but there was not enough to sustain the non-farming
population, so the output never entered the market.
The society was almost cashless
Peasants didn’t own their land or innovate.
- However, there was a flourishing market economy in the city. 2 great differences between
then and now are:
Great reliance on unpaid slave labor.
Centre of consumption with no production. (luxery goods imported)
- Wealth followed power and not like capitalism where power follows wealth.
Political and economic life was dominated by warfare, so administration +
organization was needed.
- Greek thinking:
Individual was always the center of decision making.
Macro: deciding who the ruler of a city should be
Micro: household management (oikonomikos): making sure that the basic
needs like food and shelter is fulfilled etc.
The idea of efficiency went combined with anthropocentrism.
man is the center of existence.
Roman Empire
- Many economic challenges: warfare, trade, colonization.
- Almost no analytic work on these challenges.
Islam
- 700-1200 Islamic conquest created a large empire from Spain to China/India.
- Arab scholars:
Roman numerals were replaced with Arab numerals.
The writings of Aristotle were reintroduced in the west new economic thoughts.
The Middle Ages: feudalism
- Collapse roman empire catastrophic disorganization medieval economic life.
Feudalism became the economic system
Economic system with low productivity aimed at self- sufficiency + no market
system.
- In the growing cities people were freed from feudal obligations.
Merchants: commercial activity with traveling fairs
Guilds: regulating the market by imposing rules on production, wages, pricing.
- It was no Market society yet, because:
The laws of demand and supply must take over the role of the guilds + lords.
There was not yet a general acceptance of profitmaking.
The age of enlightenment
- Changes from feudalism age of enlightenment
, Urbanization: countries and cities really started to form
Exploration: influx of precious metals into Europe from colonies etc.
The crusades: religious landlords go on crusades and see the city of Venice
where trade was already going on.
Religious change: Calvinism was better for business than Catholicism.
Rise of commerce between states competition who has more money.
- Various consequences
Emergence of profit motive
Different social classes: laborers, capitalists, and landowners
Situation in France: depression
- Expensive wars + multiple famines + Louis XIV
High taxes underconsumption of commerce/products (not enough money)
Taille (property), aides (sales tax), douanes (import/export)
Industrial Revolution and the time after (18th till the 19th century)
- Agriculture and handcraft economies industrial development
Machines increase food output fewer farmers needed to support the population
expansion + trade farmers went to industrial towns More inequality and
poverty.
- Industrial towns/cities: horrible living situation: strict dangerous jobs + child labor +
overcrowding protests against capitalism, but lower classes were kept in check.
- 1870: economic theory changes: distinction between classical economist and marginalists.
The Roaring Twenties and The Great Depression (1920’s economically amazing)
- People indebted themselves to buy stocks to get rich quickly enormous amount of money
was being invested in stocks October 1929: stock market crash global depression 1930
GDP decreased by 50%, wages dropped by 60%, 14.000.000 million unemployed,
residential construction decreased by 95%.
The World Wars and The Great Systems debate
- The great systems debate: which great systems are organizing economic life?
WW1 war economy: high employment + minor cyclical changes.
Gov. not driven by profit motive, but they want to maximize production + efficiency.
Why isn’t this possible in times of peace? Is the market system rly the best
system?
Information age
- Technological advancements easier data collecting and analyzing econometrics.
- Econometrics: using statistical tools to analyze relationships between economic variables.
Macroeconomics: economic policy evaluation and predicting trends
Microeconomic problems solving involving individual behaviors.
- Data:
Volume: the amount of data Velocity: Speed at which the data is generated.
Variety: data in different forms. Veracity: data quality and accuracy.
Economic thinkers and different school of thoughts.
