Understanding Economics: History, Theories, and Factors
The Foundations of Human Economic Activity
Human economic activity is determined by several interconnected spheres: legal (providing a framework), political (regulating and organizing social life), moral (seeking the good), and economic (aiming for the social optimum).
Defining Economics and Political Economy
Economics studies how people in society obtain goods and services to meet their needs. Political Economy, with roots in antiquity (Aristotle), emerged as a distinct field with Antonio de Montchrétien’s “Treatise on Political Economy” and Pietro Verri’s 1771 “Meditations on Political Economy.”
Types of Needs
Needs are categorized as:
- Natural
- Basic (physiological or cultural)
- Artificial
Understanding “Goods” and Value
A “good” is anything that a person believes can directly or indirectly satisfy a need. Carl Menger outlined four conditions for something to be considered a good:
- A given need
- Qualities of the object that can address the need
- Knowledge of these qualities
- The ability to use the object to satisfy the need
Value refers to the capacity of an object to satisfy a need.
Public Finance and Productivity
Robert Guerra states that public finances manage a country’s monetary income. Productivity, linked to economic growth and progress, is a key determinant of a country’s economic success.
Historical Perspectives on Economics
- Early Views: Economics was seen as intertwined with human free will, political aims, and moral order, and considered an art.
- Patristic Thought: Developed by the Church Fathers.
- Liberalism: Emphasized agriculture and industry, criticizing mercantilism.
- Mercantilism: Focused on industrial protectionism, often at the expense of agriculture.
Key Economic Schools of Thought
- Physiocracy (François Quesnay): Rejected mercantilist beliefs, emphasizing agriculture, natural order, and freedom. Quesnay’s “Tableau Économique” depicted society as divided into three classes: productive, proprietary, and sterile. He believed that value was not increased by price, but by keeping workers consuming.
- Classical School (Adam Smith): Smith, considered the father of economics, introduced the concept of the division of labor in his “Essay on the Nature and Causes of the Wealth of Nations.”
- German Historical School: Known as the Romantic period, represented by Frederick Gentz and Adam Müller.
- Marxism (Karl Marx): Developed the theory of Marxism.
- Keynesian Economics (John Maynard Keynes): Keynesian thought was prominent in his work on production.
- Monetarism (Milton Friedman): Friedman was a proponent of the quantity theory of money and a key figure in neo-orthodoxy.
Production and Factors of Production
Production involves creating goods and services and encompasses all economic life. Alfred Marshall identified four factors of production:
- Land
- Labor
- Capital
- Organization
Capital and Organization
Capital refers to the instruments used in the economy to produce goods. It’s classified into various types: savings, money supply, fixed, financial, free, loan, private, production, and social.
Organization is the ability to successfully manage production.
Natural Resources and Climate
Climate encompasses atmospheric temperature, prevailing winds, barometric pressure, and humidity. Jorge L. Tamayo categorized natural resources as:
- Renewable
- Permanent
- Non-renewable
Enrich W. Zimmerman stated, “Resources are the foundation of security and are fundamental to abundance of power and wealth.”
The Service Sector and Tourism
The service sector encompasses activities that don’t result in tangible objects. A service is the performance of work to meet the needs of others. Tourism involves the movement of people and contributes to income generation, communication, and other areas. Tourism, particularly of a historical nature, emerged after the advent of paid holidays.