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Historical Development

Although economics originally referred to the management of the affairs of the household (oikonomia in Greek), its meaning evolved into political economy—"[t]he financial branch of the art or business of government" (Milgate et al., eds., vol. 2, p. 58)—then into how to make a country wealthy, and finally into a social science that studies the production, distribution, and consumption of commodities.

The economic problem or the objective of the economic arrangement, be it in a primitive hunting and gathering society or in the most sophisticated modern industrial society, is that of provision—how to use scarce resources to produce goods and services and how to appropriately distribute the product. This problem has remained basically unchanged in human history. Over time, what has differed or changed are the modes of economic organization that correspond to the cultural arrangements in human societies. But the existence of the economic problem is different from an analysis of the economic problem. Organized economic systems existed in ancient Egypt, the great African empires of Western Sudan, the Aztec and Incan civilizations of the Americas, and the Assyrian and Babylonian theocracies. But according to Joseph Schumpeter, there is no trace of analytic effort until Greece. Even the beginning of the analytic effort did not become systematic until the eighteenth century. Hence, as a field of study, economics is relatively young, and only emerged as a full-fledged separate discipline following the publication of Adam Smith's The Wealth of Nations in 1776.

In Western civilization wealth was the primary and original concern of economics, and in economics the questions about wealth concerned the means of acquiring, maintaining, and increasing it. Wealth was seen by Aristotle not as an end, but as a means of achieving ethical and political ends. Whereas the treatment of wealth in the noneconomic fields of religion, history, politics, and the like focused mostly on its distribution and its effect on affluence, poverty, and the state, the approach of the economists was to focus on the means to wealth.

In addition to the attempts to understand the sources of wealth, pioneer economists sought to understand human nature and the sources of value. Human nature has been viewed both in the traditional conservative view as natural and pre-ordained and in the critical liberal view as socially determined. The traditional conservative view from the Middle Ages through slavery in the Americas and the industrial revolution sees ideas, drives, and practices as natural, inherent, God-given, or innate. Hence, the classical and neoclassical economists believed that capitalism was natural and eternal and consumer preferences were given, since individuals were born with them in the same manner that the conservative religious leaders believed that serfdom was natural and the American conservative southerners believed that slavery was ordained by God. Critical economists or the liberal view originating from Karl Marx (1818–1883), Thorstein Veblen (1857–1929), and John Maynard Keynes focused more on the evolution and transformation of economic systems and their impact on people's ideas and preferences. This premise was based on the belief that ideas and preferences are shaped by the society in which people live (Hunt and Sherman).

With all its accomplishments, economics is plagued with a crisis of identity and dissension and disagreements on how it should be taught, how it should be practiced, and how it should be used. Furthermore, the field of economics has been slow in reintegrating itself into the social sciences to become, once again, more problem-driven and more eclectic. Indeed the shift to abstraction and quantification that was started by David Ricardo continued until relatively recently and is at the source of the dispute about the usefulness of economics in modern society. Many economists complain about an undue attention paid to esoteric models, and the tendency by some economists, mostly of the orthodox school, to provide a uniquely economic answer to such social questions as the causes of growth and why some countries are underdeveloped.

Undeniably, as the twentieth century drew to a close, there was a greater recognition of the importance of noneconomic factors in explaining major economic questions and problems. For instance, mainstream economics has come to acknowledge the importance of history, political conditions, sociocultural factors, the environment, geography, and international variables in explaining such economic problems as lack of growth, underdevelopment, inequality, and poverty. This recognition notwithstanding, the field of economics has still not seriously focused on the critical and endemic problems that plague the world. For instance, despite being the least developed continent in the world representing arguably the most daunting economic challenge in modern history, Africa has been all but ignored by economics. This is amazing in light of the fact that the field's supposedly central preoccupation is the problems of income, growth, distribution, and human welfare.

Notable contributions to the field of economics include Richard Cantillon's Essay on the Nature of Commerce (1755), Adam Smith's Wealth of Nations (1776), Karl Marx's Das Capital (1867), Thorstein Veblen's The Theory of the Leisure Class (1899), and John Maynard Keynes's General Theory of Employment, Interest, and Money (1936). Before the publication of the Wealth of Nations, there were other schools of thought whose main preoccupation was wealth creation and the organization of the economy, most prominently, mercantilism and physiocracy.

Mercantilism or bullionism.

Mercantilism or bullionism is a loose economic school of thought whose basic belief is that a nation's wealth originated from gold and silver bullion and other forms of treasure. The mercantilist ideas were spread in an uncoordinated three-hundred-year effort, mostly through the English pamphlet writers of the seventeenth and eighteenth centuries, a period marked by significant shortages of gold and silver bullion in Europe. Mercantilism believed in trade regulation, industrial promotion, imposition of protective duties on imports of manufactures, encouragement of exports, population growth, and low wages. This belief in regulating wealth was grounded in the conviction that favorable balance of trade leads to national prosperity.

Mercantilists assumed that the total wealth of the world was fixed and reasoned that trade would lead to a zero-sum game. Consequently, they surmised that any increase in the wealth and economic power of one nation was necessarily at the expense of other nations. Hence, they emphasized balance of trade as a means of increasing the wealth and power of a nation.


The term Physiocracy (the order or rule of nature) developed for less than two decades as a reaction against the doctrines and restrictive policies of mercantilism. Founded on a doctrine of noninterference, the physiocratic ideas were first enunciated by the Frenchman François Quesnay (1694–1774). Quesnay argued that only agriculture can produce net output (produit net). According to Physiocracy, the farmers and landowners were considered to be the productive classes whereas the merchants and industrialists were not. The Physiocrats believed in natural laws, the free enterprise system, and the free operation of the natural order of things. Quesnay also developed the famous Tableau Economique (economic table) in an attempt to establish a general equilibrium through a basic input-output model. The main ideas of Physiocracy that were promoted by the intellectual disciples of Quesnay—a group of French social reformers—came directly or indirectly from his Tableau Economique. Another important contributor to Physiocracy is Anne-Robert-Jacques Turgot (1727–1781), whose Reflections on the Formation and the Distribution of Wealth (1769–1770) was one of the most important general treatises on political economy written before Smith's Wealth of Nations.

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Science EncyclopediaScience & Philosophy: Dysprosium to Electrophoresis - Electrophoretic TheoryEconomics - Historical Development, Major Theories, Themes, Global Organization And Orientation, Impact Of Influential Economic Ideas