As the science of decision making, economic philosophy operates in our daily life, whether we realize it or not. We live in a world of finite resources; economists must decide how to use these limited inputs to satisfy our never-ending list of wants and needs.
To do this, economists study and analyze the relationships between resources — materials and labor — and the production, distribution, and consumption of the resulting goods and products. Economists can study how these decisions are made on a microeconomic level between individuals involved in a business decision or transaction, or on a macroeconomic level that considers the entire city, state, or country as a singular unit.
For example, a microeconomist might consider how supply and demand is impacting prices at one firm, or the way taxes have changed that firm’s costs overtime. A macroeconomist, on the other hand, studies the way gross national product (GDP) is affected by changes in national income and unemployment.
Although both of these fields operate on different scales, microeconomics and macroeconomics largely share the same methodologies. They also share an underlying assumption of self-interest upon which all modern economic theory rests. Adam Smith first coined this term to describe the notion that people will act purposefully to maximize their satisfactions, given their limited time, information, resources, and budgets.
As part of those rational decisions, Charles Nelson argues that people must consider their resources as they relate to the production of their goods and services. Economists typically categorize these resources into categories: land (natural resources), labor (time, effort and skill), and capital (including human-made tools), which culminate in entrepreneurship as the coming together of economic resources to form productivity.
The field of economics draws from many other disciplines to illustrate how these concepts function in real-life. Mathematical formulas and models describe how resources are turned into capital, or the way labor can be cut-down by advancements in production. Economists base their perception of the economy on the pillars of philosophy. Social scientists consider economics as they try and understand the welfare of certain population groups. Policy makers measure economic impacts in order to shape the way members of the public do business with one another.
Economic thought has been evolving for hundreds of years. The following timeline of important figures and dates can help illustrate how the field has developed.
850-1000 A.D. – Marks the rise of feudalism, which arose in England and entails a society where land is held in exchange for service. Peasants or a working class are protected by a military class in reward for obedience. The origination and existence of this inequitable, often cruel system is debated today.
1723-1790 — Adam Smith is largely considered the father of modern economics. Smith’s Wealth of Nations, considered his opus, includes the ‘invisible hand,’ a term that describes the self-regulatory nature of functioning markets; and the notion that rational self-interest in a free-market economy leads to economic well-being.
1766-1843 — Thomas Robert Malthus studied populations, and was one of the first economists to explore the relationship between population growth and inflation. His main contributions include his work on the relationship between food supply and populations, and economic rent theory.
1748-1832 — Jeremy Bentham was a British economist who is today often associated with the doctrine of Utilitarianism. Far ahead of his time, he advocated for universal suffrage and is considered a forefather of welfare economics.
1772 -1823 — David Ricardo was inspired by Adam Smith’s Wealth of Nations, and at the age of 37 went on to propose the labor theory of value, which argues that labor is the only factor that should determine the value of a commodity. This is in opposition to demand, which is the backbone of capitalism.
1806-1873 — John Stuart Mill drew from the ideas of Smith and Ricardo when he wrote Principles of Political Economy, which became the leading economic text of its time. Mill is credited with the idea of a free market economy, and was a strong advocate for creating a democratic economy (as opposed to capitalism).
1818-1883 — Karl Marx is most noted for his advocacy of socialism and communism over capitalism, which he strongly denounced. He is arguably one of the most influential economists in history. Marx believed that communism was inevitable in the process of evolution that begins with feudalism and passes through capitalism and socialism.
1842-1924 — Alfred Marshall focused on the study of microeconomics and wrote Principles of Economics, which is one of the most notable economics textbook of all time. Marshall proposed the idea that economics was a scientific discipline that required more mathematics and less philosophy and rhetoric.
1857-1929 — Thorstein Veblen is best known for his book The Theory of the Leisure Class, and his ‘institutional economics’ approach explored the effects of social establishments — such as religion, poverty, and political affiliation — on economic productivity.
1883-1950 — Joseph Schumpeter contributed the idea of ‘creative destruction,’ which implies that the economy is in a constant, cyclical state of productivity and collapse. He is also one of the first to lay out a clear concept of entrepreneurship.
1883-1946 — John Maynard Keynes was one of the most revolutionary economists of the 20th century. He argued against free market principles and stated that aggregate demand — as opposed to worker flexibility — played the largest role in employment. He also promoted fiscal measures as a means of correcting depressions and recessions; the bailouts issued in response to the recent recession are one such example.
1912-2006 — Milton Friedman was an advocate of free markets, and his philosophies became a major tenet of the fiscal conservative movement. He was an advisor to President Richard Nixon and was president of the American Economic Association in 1967.
1908-2006 — John Kenneth Galbraith explored the role of corporations in the U.S. economy, and was critical of their influence and replacement of smaller firms in his book American Capitalism: The Concept of Countervailing Power.
1919- 2005 — Robert Heilbroner is the author of The Worldly Philosophers, and was a socialist for most of his life. He was critical of the study of economics and argued for a renewed look at the field.
The evolution of economics has continued to the present day, and this fascinating field will undoubtedly continue to play a major role in worldwide business, government, and society as a whole in the years, decades, and centuries to come.
Reprinted by permission.