What is Economics and is it possible that there could be more than one meaning?
The Oxford dictionary defines Economics as “The branch of knowledge concerned with the production, consumption, and transfer of wealth”, but also continues to say it is “The condition of a region or group as regards material prosperity.” You’ll notice that these two definitions from the same source, already hints towards grey areas when it comes to the meaning of economics.
A discussion on the news around economic recession, new economic policy or our political and economic system might have you interested in exploring economics for the first time? Or you’ve noticed that macroeconomics and international economics is part of the curriculum of your undergraduate business degree and wonder what economics is all about? Whatever your reason, Economics is a field as broad as the various opinions and perspectives around the world.
Luckily, with an understanding of some basic economic principles you’ll be well on your way in grasping how the study of economics can serve countries, communities and even yourself. You’ll realise that the history of economics is filled with exciting and speculative economic views and in spite of contradicting economic theory, we can use it to guide our countries towards a financially and socially sustainable future.
Let’s get a bit more background on what Economics is, have a quick look into how some pioneers created various economic theories and expose you to some of the core economic principles to get you started.
Classical and Modern Economic Theory
Economics in simple terms is a science that studies how individuals, businesses and governments make decisions around their resource allocation to guide and/or navigate the consumption, production and distribution of goods and services.
This definition of Economics has been created through the work of brilliant historical economists. They commented not only on what economics is, but debated around free-market or command economies, socialism versus communism, the role of government and what constitutes economic freedom.
One of the earliest economists that commented on the nature of economics was Adam Smith. He believed that Economics is the study of production and the distribution of wealth. In 1776 he published “Wealth of Nations” which might be considered as the first formal piece of writing on Economics. Classical economic theory was however not formed through the isolated opinion of a single philosopher.
According to some, the first economic discussion dates back to the 8th Century B.C when Greek poet, Hesoid, tried to convince his brother in his writings ‘Works and Days’ on how best they should manage resources in their family estate.
This establishing theory around the limitation on resources and the way in which it influences wealth and production, was also evident in the works and opinions of other famous economists like Thomas Robert Maltus. Thomas, an 18th century economist added his view to this definition in ‘An Essay on The Principles of Population’. Here he explored theory around population growth and how the principles around resource scarcity would eventually lead to disasters like famine and war.
As human beings we continuously strive to satisfy certain needs and wants. The efficiencies we create in the allocation of resources, like time and money, will determine whether we can successfully achieve that to fulfil these needs. This core thought shaped classical economic science. But, through the lens of irratic world events and the unpredictability of human behaviour some believed that it’s not as simple as that. Thomas Carlyle was one of the more radical thinkers when it came to classical history or economic thoughts and referred to Economics as a ‘dismal science’ due to its inconsistent nature.
Lionel Robbins was someone who started to place a bit more focus on human behaviour in economics and in his opinion, Economics goes beyond the simply put wealth creation. The motive of an improved standard of living is what ultimately drives how an economy operates and our modern view of political and economic systems assumes this speculative nature an imperative part to economic study.
Even aspects around whether Economics can be considered a social science, natural science or even a science at all have been debated. Some believe it cannot be seen as a natural science like biology or physics due to the human aspect around it and the fact that experiments cannot be done in controlled conditions.
Most people today would argue that Economics needs to belong to social studies like law and psychology.
Either way, the importance of Economics in our modern life cannot be questioned.
Economics informs approaches and opinions toward government spending, economic policies and how best to address economic problems. We try to predict economical influences and outcomes through economic study, but many of these will continue to elude us as we try and eradicate inequalities against free competition and capitalism.
Economic Systems and Striking a Balance?
South Africa’s history of apartheid caused massive inequality in its people and through the institution of policies and regulations, there’s been a continuous effort to try and actualise the country’s new socioeconomic goals.
Debates are ongoing on whether the nationalisation of banks, reappropriation of land and protective import measures will guide economic activity to the benefit of all South Africans. Just like governments across the globe, the decisions of how the South African government influences economic activity against the backdrop of a mixed economy remains a challenge.
Let’s learn about command and market economy as your comprehension might influence your opinion on our government's policies.
Through governing bodies, people within a specific country are influenced and directed through economic systems to allocate resources, services and goods according to the socioeconomic objectives of that country.
A command-economy is where a centralised government, calls most of the shots around what needs to be produced, how much and at what price it should be sold. It’s a key feature of a communist society and government control is not necessarily a bad thing if their interest will first and foremost remain that of the people.
This approach is contradictory to more democratic and liberal views where capitalism allows the people to have the power.
Capitalistic views are more associated with the market economic system; one that allows complete free movement of economic activities with as little government interference as possible.
Do you think resource allocation should happen automatically by free-market mechanics that welcomes private-ownership or would you rather support a socialist economy where production means and ownership are shared by society?
Both these economic systems have their advantages and disadvantages and in today’s modern world most countries tend to lean towards a mixed system where all the public services are managed by government while allowing free market movement in the private sector.
Views around favoured economic systems are influenced by social conditions, economic background, political opinion and loads of other personal factors so you will probably develop your own opinion on which camp you’ll support in your studies.
When it comes to economic system and resulting policies it is, however, never a clear-cut solution and even a mixed market economy has challenges as governments and the private sector struggle to strike the balance around economic control.
Macroeconomics or Microeconomics?
Two of the most familiar terms in Economics are Macroeconomics and Microeconomics. The economic indicators we cover in Macroeconomics will look at the economic health of the country as a whole. You’ll learn about the importance of economic behaviour around recessions, economic booms and exactly how international issues, like trade restrictions, can influence the country’s overall economic performance. Here are some of the other economic indicators your study in Macroeconomics will cover:
- GDP (Gross Domestic Product)
- Production Output
- Retail Activity
- Unemployment Rate
- Consumer Price Index
A country’s commercial activity is however, driven by human beings. It’s the more detailed study of microeconomics that looks into how behaviour and decisions influence wealth and growth. Human psychology is an important aspect we consider in microeconomics and behavioural economics is a new specialisation field specifically around that. Here are some additional microeconomics topics you’ll cover once you delve further into it:
- Demand and supply
- Labour division & allocation
- Confronting scarcity
- The price elasticity of demand
- Monopoly, oligopoly and imperfect competition
Exploring Your Definition of Economics
We haven’t even scratched the surface on what economics constitutes, but hopefully our exploration into a bit of economic history, definitions and the various forms of economic systems will help you understand how it influences our daily lives and economic activity.
With your newfound knowledge you might already be forming ideas on which policies, economic systems or views you support? Do you see Economics as purely a science around wealth creation or more of a social science where the human condition drives economic principles? We want to encourage you to read newspapers, global essays or access important economic perspectives as it will help you form an informed and clear definition of Economics for yourself .
You can find an Economics tutor on Superprof to help you with this. They can help to provide you with a learning plan, different perspectives and their recommendation around how you can approach your studies to ensure you stay excited about the world of economics. You can also read more about the key concepts in Economics here to speed up your learning curve.