Key Messages
Unpacking the History and Controversies of Economics
A Little History of Economics offers a rollicking, whistle-stop tour of the global history of economics from the ancient Greeks to today.
Its pages contain fascinating insights into how economists have sought to explain their own times as well as how countries, cultures and societies around the world differ.
Find out why the Catholic Church reversed its position on moneylending, why and how the Soviet government’s renegotiated relationship with its economy caused millions of deaths and what bias most economists are likely to share.
Through this book you get to explore an informative overview on different economic theories over time – all while learning why Britain has advanced teaching resources but Burkina Faso may not.
You will also discover how cowboys (and girls!) triggered the worldwide financial collapse in 2007.
By considering what earlier economists said about their own situations, we can gain insight into our present situation–all thanks to A Little History of Economics!
The Growth of Money-Based Commerce and the Emergence of Mercantilism in Europe
The first question for early economists was the role of money and merchants in economic life.
This was a concept proposed by Aristotle in the fourth century BCE.
He saw money as both a convenience, by enabling people to easily pass goods from one another; but he also saw its dangers, such as the situation with the olive farmer growing their crop purely for profit instead of to support their family.
Early Christian thinkers didn’t approve of moneylenders either, calling them “usury.” However, due to the growing commerce of Venice and Genoa and their need for financiers to lend them funds, moneylending became increasingly commonplace – much to the dismay of religious authorities.
Even peasants began forsaking their farms in exchange for working in cities for coins instead.
This eventually led to European traders exploring and plundering other countries rich in gold or silver – making many countries wealthy over night through mercantilism – an alliance between merchants and rulers.
Thomas Mun was a notable economist who pushed forward this idea that enriching merchants was good for the nation as a whole; which lead to him involvement in setting up companies like the East India Company where people could share profits
Adam Smith’s The Wealth of Nations Advocated the Benefits of Division of Labor in the Industrial Age
As the Industrial Age began to emerge, economics changed drastically.
Before this shift, taxes on peasants had been the norm; however with the revolutionary views of Francois Quesnay, the idea that the wealthy should pay taxes instead started to become normalized.
Quesnay believed strongly in allowing agricultural production to occur freely without government control and he pushed for an end to merchant privileges in France.
This laissez-faire economic stance was one of the first moves towards modern economics.
At the same time, Adam Smith was hard at work writing his famous book The Wealth of Nations.
He proposed his own ideas about how competition will always exist regardless of any individual entities’ interference and may be guided by an “invisible hand” in society.
Additionally, Smith highlighted his idea of division of labor: In complex societies specialized work can increase production efficiency leading to lower costs for consumers.
It was during this Industrial Age that economists created fundamentally new theories pertaining to economics that eventually translated into what we recognize as our current system today – demonstrating how radical ideas have been crucial in shaping our global economy in both present and future generations.
The Nineteenth Century Saw the Rise of Economic Thought Devoted to Addressing Wealth Inequality as a Result of Industrialization and Capitalism
Through the nineteenth century, economists began to grapple with an increasingly pressing and pertinent issue: inequality of wealth.
In Britain, factory owners and landowners had become extraordinarily wealthy while the nation’s workers found their wages stagnant and conditions worsening.
This spawned a diverse array of economic thought devoted to finding solutions that would reduce this gap between the classes.
One of the first was British stockbroker David Ricardo, who argued for free trade practices so as to make grain prices more equal for all.
However, he was met with derision in Parliament and his plan did not come to fruition until decades later – after he passed away.
Other economists took even more extreme views on the idea of wealth equality, with some proclaiming communal ownership as the key to a happier society; while others like Thomas Malthus believed that people were poor because they were too lazy.
Lastly Karl Marx discussed how those who owned and controlled production could exploit the workers by owning only their labor – leading ultimately towards communism where class differences would be eliminated altogether.
By the start of the twentieth century though, some governments began taking steps towards addressing this important problem with initiatives such as unemployment benefits, universal education and child labour laws – paving way for further discourse about inequality and social justice throughout ensuing decades.
The Changing Relationship Between Government, Capitalism and Consumption in the Early 20th Century
As Europe engaged in heated debates over the role of government in their respective nations’ economies, America’s wealth became increasingly prominent.
Heralded by nouveau riche industrialists such as the Vanderbilts and Carnegies, America’s standard of living soared when the government allowed for markets to operate freely with minimal intervention.
Their newfound wealth was visible everywhere; from the luxurious mansions and expensive cravats which were used to flaunt success and prosperity, to the abundance of resources available to citizens at increasingly lower prices as a result of increased efficiency.
At that time, economists were also debating two different approaches towards managing economic affairs: Kremlin-style central planning (In this approach governments direct market activity), preferred by Lenin and other Marxist theorists; or laissez-faire capitalism favoured by Ludwig von Mises who argued that market forces alone should determine pricing.
The outcome of these arguments would have a dramatic effect on global economics later on in the century; however, it was already clear that America, spurred on by its free-market economy, was well on its way to becoming one of the wealthiest countries in the world.
The Link Between Government Involvement and Economic Growth Is Complex, But Has Played an Important Role in Developing Countries
In the mid-twentieth century, political events such as the Great Depression and World War II had a major impact on economic theories.
The Great Depression in particular inspired economists to develop new theories of how governments could intervene in an economy to prevent recessions and poverty.
John Maynard Keynes believed that government spending was necessary to stimulate an economy, while Friedrich Hayek warned against too much government control which could lead to totalitarianism.
Following World War II, developing nations also began using economic theories that promoted government involvement for their own economies.
Arthur Lewis’ advice for complete government control of Ghana’s economy allowed them to become more competitive with other countries.
Although this had some successes, it was not always successful in driving economic growth and development.
Conversely, in countries like South Korea state-controlled businesses have had major success due to their involvement with the government.
This provides a powerful example of how political events can truly create a lasting impact on economic theories around the world.
After World War II, Economists Posed Solutions to New Problems, From Crime and Global Inequality to Strategic Thinking about the Cold War
After World War II, economists began to look for solutions to a range of large and small economic problems.
On the larger side, there was Keynes’ work around government’s role in guiding an economy.
This was known as macroeconomics.
On the smaller scale, there was microeconomics – looking at people and businesses’ daily decisions that form an economy.
In addition to these two bodies of thought, during the Cold War economists sought ways to understand geopolitical actions and their impacts on economics.
This led to the development of game theory which is used today by decision makers when considering strategies for both individuals and companies.
Overall, this post-World War II period saw economists increasingly looking beyond the traditional roles of governments in managing economies, into understanding individual behaviors and global dynamics that were shaping economies across cultures and regions.
The Message of Keynesian Economics: Governments Should Get Involved in the Economy with Careful Considerations of Potential Side-Effects and Selfish Motivations
Keynesian economics was extremely popular in the decades after World War II.
This is because a group of economists, known as the young Keynesians, developed practical applications of John Maynard Keynes’ theories to adapt them to the real world.
The implementation of these theories came in the form of President Kennedy’s tax cuts, which were designed to put more money in the hands of consumers and therefore jumpstart the economy.
For a while, these policies seemed to be successful, even garnering endorsement from traditionally skeptical Republicans.
However, during the 1970s economic downturn, economists began to question whether excessive government spending was driving inflation up, implying that it may not have been Keynesian economics that brought about the good performance of previous decades.
While it had once been popular amongst economists and particularly Governments, skepticism of Keynesian ideas grew due to this new information.
Milton Friedman was particularly vocal in his criticism of government interference and argued instead for markets – rather than governments – to lead society forward.
Furthermore James Buchanan argued that Government was merely another selfish entity whose main goal is ultimately their own survival much like businesses’.
The Key Message of the Financial Crisis: Reckless Risk-Taking Causes Catastrophic Losses
At the end of the twentieth century, global economies fell into financial turmoil due to a dangerously risky approach to investing.
Through speculation, bankers and currency speculators like George Soros began to buy commodities at an elevated rate in hopes of making a profit.
While some investors were able to make large sums of money quickly, others experienced catastrophic losses when their predictions were wrong.
In the 1990s, people began gambling on newly established technology companies instead.
When share prices increased, more people wanted onboard as well so that they could get rich quickly.
Unfortunately, once the bubble burst, $2 trillion vanished in a matter of minutes and many businesses went out of business.
Years later, in 2007, another bubble formed based on the housing market that saw similar results – investments stopping and economies receding overnight.
Many economists attributed this crash to Hyman Minsky’s theories which stated that capitalism becomes more unstable over time as people become increasingly bold with their spending in order to maximize profits.
The world’s economic powers instituted Keynesian-influenced policies in response that are still affecting economies today.
Inequality Remains the Major Focus of Economists: Creative Solutions Needed to Address Wealth Disparity
Modern economics is largely devoted to finding ways and solutions to fight inequality, with Amartya Sen being a particularly noteworthy advocate.
His own childhood experiences in Bangladesh has led him to pursue a career thinking about the many factors that underlie inequality and how best to address them.
According to Sen, poverty is about more than just the materials goods people lack, but also reflects a deficiency of capabilities such as education and transportation that could help lift people out of their situation.
The Human Development Index developed by Sen takes into account other metrics besides income in an attempt to provide an equitable measure of welfare.
It’s not just poverty that remains a pressing issue for economists today; gender inequality is also an important factor.
Many have been urging economists to re-examine underlying biases in economics regarding female roles and experience in society.
Feminists have highlighted the untold labor performed by women without pay – such as shopping, cleaning, and caring for children – may be neglected or marginalized in traditional economic narratives.
Social change can help significantly improve these injustices but, unfortunately, governments are continuing to make efforts at income redistribution unlikely through tax cuts on the wealthy over the last half-century.
Thomas Piketty’s “law of capitalism” explains how those already wealthy can benefit from their existing resources at a rate faster than others, making true equity difficult if not impossible without active intervention from policy makers driving real economic change.
In summary, modern economists must continue examining methods for addressing all forms of inequality – from poverty and gender inequities to disparities between haves and have-nots – if progress is ever going to be made.
Wrap Up
A Little History of Economics is a great read for everyone.
Through it, you can gain an understanding of how economics works, how it affects our lives, and what its main goals are.Ultimately, it comes down to the fact that economics is there to help us create a more equal world.
It helps us understand why some people have more money than others, why inequalities exist between individuals and between countries.
It also shows us ways that we can use economics to our advantage in order to decrease equality and make the world a better place for all.
This book drives home the importance of understanding economics and using it wisely in order to shape our economic future!
