“… the ideas of Economists and political philosophers, BOTH right when they are and when they are wrong, are more powerful than is commonly understood.” – John Maynard Keynes
Nobody can ignore the economy for only two reasons: the first is that not enough resources for everyone, since desires are unlimited. The shortage, understood as market failure, is an incontestable truth. The second reason is that we are all part of the economy. The latest issues involving the economy also involve us in every moment. Thus, regardless of the evolutionary stage of each company, we always affect situations involving the generation of employment, income, combating poverty, hunger, resource transfers, taxation, purchase and sale of goods. When you buy a movie ticket, while filling the car, when traveling on vacation, to enroll a child at school, as we embark on a driving public by paying taxes, to seek the services of a dentist, doctor, detective or lawyer, we are participating in trade and finance; we are consuming, spending, and thus making money circulate. It is no coincidence that the popular belief predicts that it is money that moves the world. And precisely because it moves with the money turns on trade in goods and services. Thus, the savings are “controlled” by its monetary base (the amount of money in circulation).
It is the base currency of a country that determines how fast (time is money, says the adage often delivered in English-speaking countries) with which an economy can grow. Why when dry “tap” financial companies, individuals and government economic activity slows. To prevent from occurring a deceleration of economic activity, the central bank (guardian of the money of a country) need to control the monetary base in a balanced manner. Any imbalance, either upward or down, has serious consequences for all.
If the central bank allows the expansion of the monetary base (excess money in circulation), surely this will lead to an inflationary process. Otherwise, if the monetary base is restricted (“downsizing” of money in circulation), the recession ahead, then causing the appearance of the unwanted situation of chronic unemployment.
However, for a control of trade in goods and services, so that production can take place so as to meet the domestic market, it is recommended that it be optimized by allocating to it, effectively, the resources available . That is the major duty that task falls to the organizers of the modern economy. It is for these organizers, they are responding to the dictates of market forces or the principles of a planned economy to achieve in the first instance what James Edward Meade (1907-95), winner of the Nobel Prize in 1977, stands as the three main objectives of the economy: 1) FREEDOM – to ensure the free choice by each citizen, 2) EQUALITY – avoid the brutal difference between wealth and poverty, and 3) EFFICIENCY – practice the best use of available resources ensure a better standard of living.
If it is true to say that current looking to the past we found some answers to these questions, the economics, since the service is really useful for understanding the economic and social environment that surrounds it, arises in such detail as the host of other social sciences for the complete understanding of what currently occurs in most societies, as that science can never be denied, since at any moment, without even noticing, we are part of the “economy” , sometimes buying, selling, exchanging or distributing. In this sense, the economy falls precisely what the character of Sherlock Holmes said, everything is a matter of “observation and deduction.”
Figure consumer or producer, employer or employee, provider or beneficiary, we all entered this social science that is also defined as “the science of choices.” Far from the coldness of graphs, equations, mathematical models and statistics, and various taxes, the economy is, above all, the study of human behavior, interacting in the same market space that is called, in turn, full of facts and events. As professor Robert Solow (1924), a singular figure of economics, “the facts demand explanations, and explanations seek new facts.” So try to understand this “behavior” that is in our daily lives is the task for modern economists.
However, in the words of Tim Harford, author of The Economist Clandestino, “the fact that the economy is a tool for an objective analysis does not mean that economists are always goals. Economists study the power, poverty, growth and development. It is difficult to generate models that describe these things without being touched by the actual context where they are”.
This text aims to do just about getting a quick “tour” through economic history, not bowing to the timeline, much less arresting to examine in detail the “human behavior.” Of course, we are not here to pretend to cover all the important facts and figures in economic history. This task, difficult to achieve, should be left to economic historians of the more devout.
They did (and still do) the economics sciences
To try to understand the current economic phenomena, we must first “dip” in space and time and those who have contributed (both in theory and in practice) for the history of economic thought. From the most simple to the most illustrious thinkers, the economic sciences, legitimate daughter of Theology, Law and Philosophy is the science that was “developed” by a French court physician of Louis XV, by a professor of anatomy at Oxford, by Greek philosopher who coined the term economics, as taught by the Scots of Moral Philosophy, by the British who made his fortune operating in the London Stock Exchange, the English professor who has advised the U.S. government, the Austrian who came to the office of minister Finance in your country, the Protestant pastor concerned about the overcrowding, by one who was considered the head of the so-called “neoclassical school of Cambridge”, by American professor who believed “there is no free lunch”, the lawyer and the German philosopher full of revolutionary ideas that advised the union of the proletarians of the world as a solution to building a better world.
According to “Genealogy of the Economy,” described by Professor Paul Samuelson (1915), the economy is in “the genius of Adam Smith’s classical school which led to David Ricardo, the ‘father of all’, which generated two streams opposite: one Orthodox, personified in John Stuart Mill and the neoclassical Leon Walras, William Stanley Jevons and Alfred Marshall, who begat John Maynard Keynes, who came, in turn, the ‘neo’ and ‘post-Keynesian’ of our day, the other, heterodox, represented by Karl Marx and his descendants ‘scientific socialists’ tinted today. ” (See Ottolmy Strauch at the Introduction, the book on Marshall, California, Nova Cultural, Brazil, 1996).
The fact is that the economy was itself or in the center or behind the scenes of the main events of mankind. So was present in the writings of the founding fathers of Western economic thought: Plato (428/427-347 BC) and Aristotle (384-322 BC). According to Plato, every human being is born with a particular vocation to pursue a trade. Aristotle viewed it as a natural order, coming to defend slavery as a “natural factor” that should not be changed. The economy was present in the emergence, formation and development of markets occurred in European cities in the late Middle Ages, the system of price formation, problems of social philosophy, in Individualism (the doctrine that the center of human life is the action of the individual) in excess of population; interventionist liberalism. Was still in the thinking of revolutionary utopian, in the Marxist view of development and collapse of capitalism, the Luddite movement that began in 1811 in the English countryside and steel, coal and manufacturing which were the basis of the Industrial Revolution. Economics met representatives and represented in Mercantilism (Petty) in Physiocracy (Quesnay), the classical school (Smith, Malthus, Mill, Ricardo), the critique of capitalism (Marx, Weblen and Hobson), the marginality (Pareto, Jevons and Walras), the neoclassicism (Marshall) in Keynesianism (Keynes and Kalecki) in historicism (Weber) and contemporary economic thought (Schumpeter, Samuelson, Myrdal, Sraffa, Robinson and Galbraith).
When the neoclassical presented themselves to the world, the economics there was represented in the concept of marginal utility and the pursuit of individual welfare. When the economic crisis decided to “shake” the foundations of global capitalism, the economy was present in the New Deal, and John M. Keynes, he returned to “shake” the world, only now in a “scientific revolution”, the theoretical founding of the current macroeconomics. Economics with the theory was that inaugurated the policy planning in the Soviet Union, as well as attended the first five-year plan that country. The economy was on costs and consequences of World War II and the Cold War, and was present with Joseph Alois Schumpeter (1883-1950) “survival” of capitalism at the hands of “revolutionary economy”: the entrepreneurs. Economic activity was, is and always will be in large firms, the major unions in big government, as well as being, above all, society at large, eager to experience better days, especially when it comes to consuming more goods and services, rather than lower costs for much of the population has access to the blessings that economic activity can provide. The economy is in the marginal costs and benefits are what really matters for the efficiency of an economy.
The economy is in everything and everything seems to revolve around the economy
As the economy is in everything and almost everything seems to revolve around the economy, Professor Roger E. Backhouse, renowned economic historian, says that even in the texts of the Old Testament or the poetry of Homer are excerpts economical. Let us not forget, in this detail, which the company described in the Iliad and Odyssey, works attributed to Homer (though there are doubts about its existence), reflects the world Mycenaean (Bronze Age) and were organized societies outside of industry standards based on plunder, theft and taxes paid by companies defeated as ways of distributing wealth. So were the societies in which economic activity marked its presence.
Hesiod who lived in the late eighth century BC is another poet of the ancient world that also seems to keep a close relationship with the economy. One of the poems attributed to the author – Works and days – has a strong economic content. According to Backhouse, Hesiod can be read as someone he saw as the basic economic problem of scarcity of resources. The reason for men to work is that “the gods keep food hidden from men, otherwise it would work easily in a day is enough to provide for the rest of the year without working.” Hesiod, in addition to being the first poet individualistic, was also the first to complain publicly of the humble from oppression, injustice to the growing supremacy of the rich.
The economy in the Ancient World
Economic activity is strongly “recorded” in the 12th century BC when the Jews who lived in the deserts of Northern Arabia, organized into families and tribes, to conquer new territories (Canaan) and they have settled. Likewise, in demanding social justice, the first news that we have prophets Elijah, Elisha, then Amos, Isaiah and Jeremiah were practicing what we now call the social economy.
Economic activity is also recorded by history in the period from the seventh to fourth century BC, especially with Anaximander of Miletus (610-547 BC) who drew the first map of the known world, certainly in view the interests of someone who envisioned reach new spaces. Already the Greek historian Xenophon (ca. 430-355 BC), comes the concept oikonomikis – referring to the administration of assets. The practice was rooted in economic trade and naval power (the forces of Athens) and agriculture and the military (forces of Sparta) and was present in the greatest period of prosperity that marked the time of Pericles, 461-430 BC. Also was on piracy that was eliminated from the eastern Mediterranean, is blossoming, as appropriate, trade, agriculture and manufacturing trade. There was intense economic activity in major construction projects of the Athenian golden age, like the Parthenon and the teachings of the sophists – the first intellectuals to charge for their teachings, among them the largest – Protagoras (500 or 480 BC – Approx . 410 BC).
Economy became rooted in the Constitution which bound the Roman political power to land ownership and military service. During this period, wars and conquests were the main sources of wealth, and the soldiers were often rewarded with land grants. You can still find “economic thinking” in the theological writings in different ways, so long before the rise of economic science fact. In detail, the scholastic thought “united” economic ideas on moral teachings in the Bible. Saint Augustine (354-430), for example, among the most learned doctors of the Catholic Church, envisioned a perfect society from progress and understand that “the rich what is superfluous is necessary for the poor.” St. Thomas Aquinas (1225-1274), in Summa Theologica, a work written five hundred years before The Wealth of Nations, Smith, already alerted to the practice of pricing in a fair way away from usury and easy gains. St. Malachy (1094-1148), in turn, crying out against oppression and social injustice, asked: “Are not we all children of one Father? We were not all created by the same God? Why, then, we live in despising each other? “. In the encyclical letter, Rerum Novarum, Pope Leo XIII (1810-1903), 1891, the economy is at present the social side, the intense defense on the conditions of workers in the aspect of wealth, highlighting the difference between ownership and usage. “The ownership is private, its use is universal,” writes Leo XIII.
The economy in the Modern World
In the Renaissance and the emergence of the modern world (fifteenth century) the economy, as it would be expected, there also was present. In the second half of this century, the Portuguese began to explore the African coast and arrive in India in 1498. The West Indies were reached six years earlier, in 1492 and a few years later, the continents of North America and South America were discovered. Later, economic activity was present in the Spanish conquests in America to Europe that provided huge amounts of gold and silver. Throughout the period of the late Middle Ages to the Enlightenment – the fifteenth to eighteenth century – that dominated the thinking was of strong economic – the Mercantilism, the term “invented” by Victor Riqueti (1715-1789), known as the Marquis de Mirabeau and popularized by Adam Smith.
However, it was only from 1756, just two decades before the launch of The Wealth of Nations, which constituted the first organized group of economists – Les economists (the Physiocrats) that took the figure of François Quesnay (1694-1774) its main proponent.
Although the French court physician, specifically of Madame de Pompadour – mistress of Louis XV – Quesnay with the publication of his Tableau économique (1758) turned to the economy by analyzing the movement of money – certainly making analogy with the circulation of blood inside the body discovered by Harvey in 1628. Another prominent name of this group is Sir William Petty (1623-1687), professor of anatomy at Oxford in 1650. Thus was born the first economists, although not yet exercised this function in a professional manner.
The birth of Economics
After a slow development, the economy was strongly influenced by scientific theories such as Newton and Darwin, by the thought of Aristotle and Plato, for philosophical movements (the Enlightenment, Positivism), by mathematical methods, by statistical techniques and has always been confronted by practical issues such as welfare, warfare, colonialism, development, communism, socialism and the transition to the capitalist world. In all these situations there is no room for doubt: human behavior was always present. Maybe that’s why Lionel Robbins (1898-1984) defined economics as “the science which studies human behavior as a relationship between ends and scarce means which have alternative uses” (An Essay on the Nature and Significance of Economic Science – 1932).
Returning in time, it is initially pointing out that from 1729 to 1746 the chair of Moral Philosophy at Edinburgh University was occupied by Francis Hutcheson (1660-1739). Known as the initiator of the Scottish Enlightenment, Hutcheson who coined the term “division of labor”, though Plato had already made reference to it, had among his pupils the great Adam Smith (1723-1790). With Smith, the economy as a science, won first body of theory. And with it, a nation’s economic growth was seen from the division of labor (which increases the efficiency of labor, i.e. their productivity) and capital accumulation, rejecting the thesis that mercantilist thought as a source of wealth only the possession of precious metals.
Altogether, the five “books-chapters” that form the Wealth of Nations, the seminal work of economic theory, published in 1776, can be understood as a vast compendium of theory, economic history, recommendations policies. It is with this work which is conventionally inaugurate the economy seen through the prism of social science. From the writings of Smith’s moral philosophy gave way to political economy. A key figure in this transition was Thomas Robert Malthus (1766-1834), a clergyman of the Church of England that meant that aid from the government to the poorest only cause greater dependence on these in relation to the government. This same period, has also gained the “principle of utilitarianism – the maximization of the sum of happiness of individuals. Jeremy Bentham (1748-1832), intellectual pulled ahead this line of thought was, no doubt, after Smith and next to David Ricardo (1772-1823), the main influence on the classical economists. Ricardo, the economy suffered the reformulation of the theory of labor value (the theory that prices of goods will be commensurate with the work required to produce them) taking into account the use of capital and technical depth was the concept of the advantages comparisons (one country may prefer to import certain products that could lower costs than those from abroad, in doing so, has the prospect of gaining a dominant position in other productions exportable).
Outside the UK which housed the economists mentioned above, we find two prominent figures in France who exercised great influence on economists in the late eighteenth and early nineteenth century. The first was a scholar named Jean-Baptiste Say (1767-1832) who prophesied that there is no shortage of demand at all, “supply creates its own demand” in the words of Say. The second was a professor of mathematics at Lyon, Antoine-Augustin Cournot (1801-1877). This teacher is considered the first economist to use a diagram to explain how supply and demand determine the price in a competitive market.
The nineteenth century also saw the emergence of a prominent figure Karl Marx (1818-1883). Born in Germany, Marx, whose name was received at the font Moses Mordechai Levi, studied law and philosophy and only later dedicated himself to the economy. Reader of English classics, especially Smith and Ricardo, Marx came to the economy initially criticizing the division of work proposed by Smith.
However, it was to read Richard Marx expired “Surplus Value” after taking up the theory of labor value. For Marx, the notion of “surplus value” is clear to see that there is a difference between the value created by labor force in the form of salable products and purchase that same work force for its exchange value, generating a surplus labor. Based on this idea, the exploitation of labor, Marx envisioned that the capitalist system, full of contradictions would give sooner or later, your place to socialism, since the conflict inherent in capitalist society would take this system to its imminent fall. Transformation through conflict is the “dialectical process” through which socialism would replace capitalism in the Marxist view.
Mathematics in economics: the contributions of Jevons, Menger and Walras
Heavy use of mathematical methods in economy is due to three theoretical perspectives: the first was a meteorologist and chemist named William Stanley Jevons (1835-1882) who in The Theory of Political Economy argued that economics was inherently dealing with mathematics because quantities. The second worked as a journalist, Marie-Esprit Leon Walras (1834-1910) and the third comes from the Viennese School, Sir Carl Menger (1840-1921).
The most prominent contribution of these theorists refers to the abandonment of the classical view of labor value for the value-utility, meaning that things are useful when they can meet any need, and thus allow your satisfaction. No one knew the other’s work, these three theorists have reached the same conclusion: the value of a good derives not from the total utility of the good, but of marginal utility, ie the utility of the last unit consumed. We still, Walras, in particular, the model of pure competition and perfect.
The Keynesian revolution and macroeconomics
After some long years of economic prosperity, the late 1920s, the twentieth century saw shake the structures of the capitalist system with the emergence of high unemployment and bankruptcies of companies. To respond to this situation until then unusual (the Great Depression), a member of the intellectual and cultural elite of London was presented to the economic scene. Born in Cambridge, England, in 1883, the same year the death of Marx, John Maynard Keynes studied philosophy and economics, as a teacher and had the neoclassical Alfred Marshall. Before becoming the chief economist of the twentieth century, Keynes worked as an executive at insurance companies in addition to speculate in currency markets, commodities and stock, and example of Richard, has amassed a considerable fortune with these speculations. Keynes became even staunch activist of the Liberal Party and married a ballerina Ruuds Diaghilev Ballet.
However, Keynes did something very prominent for economics: it redefined science, giving rise to macroeconomic theory. The General Theory of Employment, Interest and Money, magnum opus published in 1936, the employment issue was present and the backbone of Keynesian thinking began to be the principle of aggregate demand.
According to the theory of Keynes, employment depends on aggregate demand, whose components, in the private sector, are consumer spending and business investment, while the level of investment spending depends on the interest rate and the rate of expected return on new investments.
Keynes emphatically deny the classical approach and reversed Say’s Law, saying that it is the gift that generates, by adjusting the demand for the products developed, but the demand that generates output. Ruled otherwise even the quantity theory of money, as had been stated by Irving Fisher (1867-1947). Keynes strongly argued that the government would provide jobs to unemployed and looked closely at the demand, not supply, as did the classics. The policies he suggested founded a new relationship between state intervention and economic activity. In the years following the end of World War II in 1946, having assumed the chairmanship of the IMF (International Monetary Fund), when he was 62 years, died, leaving the life to come, so definitely, along with The General Theory, in the history of the great names and works of Economy, alongside Smith, The Wealth of Nations and Marx’s Capital with.
Arguably Economy (science and economic activity) reached a plateau on which, in developed countries, as we that are in development, billions of people around the world can be helped by good and appropriate economic policies, as well as might be harmed and had committed his future, if these policies are distorted. My conclusion in this respect is unique: the economy enables each person, regardless of the performance of the government, the chance to change their destiny and, through the known positive externalities – a term dear to economists – to interfere in a beneficial way in the future others.
When I say independent of the performance of the government, I want to accentuate the character of cooperation, mutual help, which marks the behavior of certain people. The way to go towards a fairer and less unequal, passes on our understanding, the practice of helping one another, as it happens before some disasters that gained national or international scale.
The model of ideal society must travel the road that leads to cooperation, capable of joining forces in exchange for the current centralized model of competition, which only divides and purge non-winners. This latest model has proved more than reasonable that it is absolutely segregated, individualistic, and does nothing in practice efforts of the common good and collective. Economic agents need to identify what is the best model of society and begin to implement the cooperation. The economics of this peculiarity has to identify the best output. The modern economist, increasingly, given the brutal difference between the rich and the miserable world, it is impossible to be indifferent to certain events, especially those that refer to death of millions of people who are daily victimized by hunger, disease, by poverty, misery and its nefarious consequences on account of economic insensitive to human suffering. While economists, often do not agree with each other, the economy needs to sharpen his social side, after all, economics is “classified” as humanities.
Works consulted and recommended for further theoretical
BACKHOUSE, Roger E. History of the World Economy. São Paulo, Estação Liberdade, 2007.
BROCKWAY, George P. Economist Can Be Bad For Your Health. New York. W.W Norton and Company, 1995
DASGUPTA, Partha. Economy. São Paulo, Attica, 2008
DOBB, Maurice. Introduccion a la Economia. Ciudad de Mexico, Fondo de Cultura Economica, 1986
DROUIN, Jean-Claude. The Great Economists. São Paulo, Martins Fontes, 2008
FUSFELD, Daniel R. The Age of the Economist, São Paulo, Saraiva, 2001
HARFORD, Tim. The Economist Clandestino. Rio de Janeiro, Record, 2007
SILK, Leonard. The Economists, New York, Discus Book, 1978
VERCESI, Alberto J. Historia del Pensamiento Economico. Bahía Blanca, Argentina, Editorial de la Universidad Nacional del Sur, 1999
About the author:
Marcus Eduardo de Oliveira is an Brazilian economist and professor of Economics at FAC-FITO and UNIFIEO (São Paulo, Brazil). MSc in Latin American Integration (USP) and Specialist in International Politics (FESP), with a specialization course at the Universidad de La Habana – Cuba. Author of “Talking about Economy” and others books.
Marcus Eduardo de Oliveira