History of economics from time to time

The history of economics is a fascinating journey through time, reflecting humanity's evolving understanding of how resources are produced, distributed, and consumed. From ancient civilizations to the modern global economy, economic thought has been shaped by wars, revolutions, discoveries, and technological advancements.

In ancient times, the concept of economics was closely tied to the survival of societies, with early forms of trade and barter systems emerging. As civilizations like Mesopotamia, Egypt, and Greece advanced, so too did the ideas surrounding wealth, markets, and the role of the state. The influence of philosophers like Aristotle and Plato laid the foundation for early economic thinking, touching on subjects such as value, wealth, and justice.

Fast forward to the Middle Ages, where economic life was dominated by feudal systems and religious doctrines. However, the Renaissance sparked a revival of interest in commerce and trade, and thinkers such as Adam Smith began to challenge old assumptions. Smith's seminal work, The Wealth of Nations (1776), is often considered the birth of modern economics, laying the groundwork for free-market capitalism and the concept of the invisible hand.

As industrialization took hold in the 19th century, economists like Karl Marx and John Maynard Keynes offered alternative views on capitalism, highlighting the inherent inequalities and the need for government intervention to stabilize economies.

Introduction

Economics is a branch of social science that studies human behavior in meeting life's needs with limited resources. Throughout history, views on economic activities have evolved along with changes in the era, social systems, and technology. From the moral thinking of ancient philosophers to today's complex theories based on digital data, economics has undergone a long and dynamic evolution. Understanding the history of economics helps us recognize the theoretical foundations that shape economic policy and practice today.

1. Pre-Classical Period (before the 18th century)

During this period, economics was not yet recognized as a stand-alone discipline. Thoughts on economic activities were still contained in moral, philosophical, and theological teachings written by philosophers, religious leaders, and political figures. They highlighted economic issues such as fairness in trade, household management, and the prohibition of usury as part of social and spiritual values. Thus, economic thought during this period was more normative and closely related to the ethics and social structure of its time.

Ancient Greek Period:

Plato and Aristotle discussed economics in the context of morals and ethics. Aristotle distinguished between "economy" (household management) and "chrematistik" (accumulation of wealth). He believed that trade should be controlled so as not to exceed moral limits. The economic era was heavily influenced by religion, especially the Catholic Church. Figures such as Thomas Aquinas emphasized the importance of fairness in transactions and condemned the practice of usury. The focus of economics at that time was more on moral values, not efficiency or profit.

Medieval Period: The conclusion of the Pre-Classical Period (before the 18th century) is that during this period, economics had not yet developed as a separate scientific discipline. Economic thought was more normative and closely related to moral, philosophical, and theological teachings, influenced by philosophers, religious figures, and political leaders. The focus of economic thought during this period was on social and spiritual values, such as justice in trade and household management, and the prohibition of usury. Thus, economics during this period was seen more as part of social ethics and morality than as a separate and scientific study. 

The conclusion of the Pre-Classical Period (before the 18th century) is that during this period, economics had not yet developed as a separate scientific discipline. Economic thought was more normative and closely related to moral, philosophical, and theological teachings, influenced by philosophers, religious figures, and political leaders. The focus of economic thought during this period was on social and spiritual values, such as justice in trade and household management, and the prohibition of usury. Thus, economics at this time was seen more as part of social ethics and morality than as a separate and scientific study.

2. Mercantilism (16th–18th centuries)

Mercantilism developed along with the emergence of modern nation-states in Europe, increased ocean exploration by nations such as Spain, Portugal, and England, and rapid growth in international trade. This system reflected the state's interest in controlling the economy in order to strengthen political and military power, especially through the accumulation of precious metals as a symbol of national wealth and the implementation of protectionist policies to support domestic industry.

Characteristics: In the mercantilist view, a country's wealth is measured by the amount of precious metals it has, especially gold and silver. A country is considered prosperous and strong if it manages to maintain a surplus in the balance of trade, namely when the value of exports is greater than imports. This reflects the view that foreign trade is the main tool for increasing a country's wealth, and therefore, the state must actively regulate trade to ensure a continuous inflow of precious metals.

Policy: Mercantilism encouraged protectionist policies involving bans on the import of foreign goods or the imposition of high tariffs on them in order to protect domestic industry. European countries also granted monopoly rights to large trading companies such as the VOC to control strategic trade routes. In addition, the establishment of colonies in various parts of the world was used to exploit natural resources and local labor to support the economic interests of the parent country. All of these policies were designed to increase the inflow of precious metals and strengthen the country's economic and military position on the global stage.

Important figures

Jean-Baptiste Colbert: French Minister of Finance under King Louis XIV who is known as the main architect of the economic policy of mercantilism in France. He implemented a highly protectionist economic policy, including subsidizing domestic industries, imposing high tariffs on imported goods, and building infrastructure to support domestic trade. Colbert believed that a strong country must have an advanced industry and active trade, so all of his policies were directed at strengthening the national economy through active government intervention.

Thomas Mun: Thomas Mun was a 17th-century English writer and economist who emphasized the importance of exports to fill the state treasury. In his famous work England's Treasure by Foreign Trade (1664), Mun argued that international trade, especially greater exports than imports, was the main way to increase the reserves of precious metals, which at that time were considered a symbol of the country's wealth and power. He supported the mercantilist view which believed that a strong and prosperous country should regulate foreign trade to ensure a trade surplus.

3. Classical Period (18th–19th centuries)

Economics began to emerge as a scientific discipline with basic principles such as free markets and the laws of supply and demand.

Adam Smith (1723–1790):

Called the Father of Economics. His book The Wealth of Nations (1776) explained the importance of the division of labor, efficient production, and the "invisible hand" (self-regulating market mechanisms).

David Ricardo:

David Ricardo was an economist best known for his theory of comparative advantage in international trade. He argued that even if a country does not have an absolute advantage in the production of a good, it can still benefit from international trade by specializing in the production of goods that can be produced at a relatively lower cost. This principle allows countries to exchange goods and services more efficiently, which in turn increases their welfare. Ricardo thus encouraged specialization in trade, which became the basis for modern international trade theory.

Thomas Malthus:

Thomas Malthus put forward a pessimistic population theory, in which he argued that population growth would be faster than the growth rate of food production. This could lead to an imbalance between the ever-growing population and limited natural resources, which would ultimately lead to famine, poverty, and social disaster. Malthus believed that despite advances in agricultural technology, food production could not keep up with the population explosion, and thus posed a threat to the welfare of society.

John Stuart Mill

developed a theory of income distribution and social justice by combining classical economic principles with a moral approach. He argued that economics should pay attention to social welfare and individual rights, and support income equality so that all levels of society can enjoy the benefits of economic growth. Mill emphasized the importance of policies that focus not only on market efficiency but also on moral and ethical goals, such as fairness in the distribution of wealth and equal opportunity for each individual.

The conclusion of the Mercantilism period (16th–18th centuries) is that this period emphasized the importance of state intervention in the economy to achieve wealth and power through controlling international trade. A country is considered prosperous if it has a trade surplus and accumulates precious metals such as gold and silver. Mercantilism policies, such as protectionism and trade monopolies, aim to support domestic industries and strengthen the country's political position. Although this theory limits market freedom, mercantilism influenced the economic development and trade policies of many European countries at that time.

4. Neo-Classical Period (late 19th century – early 20th century)

A shift from a focus on objective value (costs of production) to subjective value (individual utility).

Key concepts: The theory of marginal utility states that the value of a good or service is not determined by its total quantity, but by the additional satisfaction received when an additional unit of the good is consumed. In other words, the more a person consumes of a good, the less satisfaction they get from that additional unit. This concept explains how the price of a good can change depending on how much satisfaction its consumption provides, which is very important in determining consumer choices and how markets function.

Key figures:

William Stanley Jevons (England)

William Stanley Jevons was a British economist known for his role in developing the theory of marginal utility in economics. He argued that the value of a good or service is determined by the additional satisfaction provided by an additional unit of the good, a concept that is very important in modern microeconomics. Jevons also contributed to the development of price theory and market equilibrium, and introduced the use of mathematical analysis in economics to describe the interaction between price, demand, and supply in a more structured and systematic way.

Carl Menger (Austria)

Carl Menger was an Austrian economist who is known as one of the founders of the Austrian school of economics and played an important role in the development of marginal utility theory. Menger argued that the value of a good depends not only on the cost of production, but also on the satisfaction provided by the good to the consumer. In his work Principles of Economics (1871), he explained that goods have value based on marginal utility, meaning that the value of a good depends on how much additional satisfaction is provided by the consumption of the good. Menger also emphasized the importance of the role of individuals in economic decision-making, and how these decisions affect the market as a whole.

Léon Walras (French-Swiss)

Léon Walras was a French-Swiss economist who is known for his contributions to developing the general equilibrium model. Walras proposed that all markets in the economy are interconnected and that prices of goods adjust to achieve equilibrium between supply and demand across markets. This general equilibrium model aims to explain how all markets in an economy can reach an equilibrium point where the supply and demand for all goods and services are simultaneously in balance. This approach is fundamental to modern microeconomic theory and has influenced our understanding of market interactions as a whole.

This period laid the foundation for modern microeconomics and the use of mathematics in economic analysis.

The conclusion of the Neoclassical period (late 19th–early 20th centuries) is that it marked a shift from classical economics, which focused on objective values, such as production costs, to a focus on subjective values, which placed greater emphasis on individual preferences and satisfaction (marginal utility). This thinking led to the development of modern economic theories, such as general equilibrium analysis and price theory, which is based on the interaction between consumer preferences and production costs. Figures such as William Stanley Jevons, Carl Menger, and Léon Walras played important roles in the development of microeconomics and the application of mathematics to economic analysis, which laid the foundation for the more sophisticated economic theories we use today.

4. Neoclassical Period (late 19th century – early 20th century)

A shift from a focus on objective value (costs of production) to subjective value (individual utility).

Key concepts: The theory of marginal utility states that the value of a good or service is not determined by its total quantity, but by the additional satisfaction received when an additional unit of the good is consumed. In other words, the more a person consumes of a good, the less satisfaction they get from that additional unit. This concept explains how the price of a good can change depending on the amount of satisfaction its consumption provides, which is crucial in determining consumer choice and how markets function.

Key figures:

William Stanley Jevons (England)

William Stanley Jevons was a British economist best known for his role in developing the theory of marginal utility in economics. He argued that the value of a good or service is determined by the additional satisfaction provided by an additional unit of that good, a concept that is central to modern microeconomics. Jevons also contributed to the development of price theory and market equilibrium, and introduced the use of mathematical analysis in economics to describe the interaction between price, demand, and supply in a more structured and systematic way.

Carl Menger (Austria)

Carl Menger was an Austrian economist who is known as one of the founders of the Austrian school of economics and played an important role in the development of marginal utility theory. Menger argued that the value of a good depends not only on the cost of production, but also on the satisfaction provided by the good to the consumer. In his work Principles of Economics (1871), he explained that goods have value based on marginal utility, meaning that the value of a good depends on how much additional satisfaction is provided by the consumption of the good. Menger also emphasized the importance of the role of individuals in economic decision-making, and how these decisions affect the market as a whole.

Léon Walras (French-Swiss)

Léon Walras was a French-Swiss economist who is known for his contributions to developing the general equilibrium model. Walras proposed that all markets in the economy are interconnected and that prices of goods adjust to achieve equilibrium between supply and demand across markets. This general equilibrium model aims to explain how all markets in an economy can reach an equilibrium point where the supply and demand for all goods and services are simultaneously in balance. This approach is fundamental to modern microeconomic theory and has influenced our understanding of market interactions as a whole.

This period laid the foundation for modern microeconomics and the use of mathematics in economic analysis.

The conclusion of the Neoclassical period (late 19th–early 20th centuries) is that it marked a shift from classical economics, which focused on objective values, such as production costs, to a focus on subjective values, which placed greater emphasis on individual preferences and satisfaction (marginal utility). This thinking led to the development of modern economic theories, such as general equilibrium analysis and price theory, which is based on the interaction between consumer preferences and production costs. Figures such as William Stanley Jevons, Carl Menger, and Léon Walras played important roles in the development of microeconomics and the application of mathematics to economic analysis, which laid the foundation for the more sophisticated economic theories we use today.

5. Keynesian Economic Era (20th century)

John Maynard Keynes (1883–1946): John Maynard Keynes was a leading figure in Keynesian economic theory that emerged in response to the failure of classical economics in dealing with the Great Depression in the 1930s. Previously, classical economic theory argued that markets would always reach equilibrium automatically, but major economic crises proved that this was not always the case. Keynes highlighted that in a crisis situation, the market was not always able to recover itself without intervention, so an active role of the government was needed to regulate the economy.

Concepts in The General Theory of Employment, Interest and Money (1936): In his famous work, The General Theory of Employment, Interest and Money (1936), Keynes argued that markets did not always reach equilibrium automatically. According to him, an economic crisis could continue if aggregate demand (the total demand for goods and services in the economy) was not enough to absorb the entire production capacity. Therefore, the government needs to intervene to regulate fiscal policies, such as spending and taxes, to stimulate aggregate demand and overcome the problems of unemployment and economic stagnation.

Application of Keynesian Theory in Developed Countries: Keynesian theory became the basis for many economic policies in developed countries, especially in the first half of the 20th century. Governments in countries such as the United States and the United Kingdom began to implement more active fiscal policies, including increasing government spending and social security programs to stimulate economic growth. This theory emphasizes the need for policies that support the economy in the short term, especially through interventions to address economic imbalances such as high unemployment and low aggregate demand.

6. Modern and Contemporary Period

Various new approaches have emerged in response to the complexity of the global economy and the limitations of previous theories.

Monetarist Economics:

Monetarist Economics, pioneered by Milton Friedman, emphasizes the importance of the role of money and monetary policy in controlling inflation. Friedman argued that the amount of money circulating in the economy has a direct influence on the rate of inflation. According to this view, tight monetary policy—including controlling the money supply—can help reduce inflation and maintain economic stability. This approach critiques Keynesian theory, which places more emphasis on government intervention in aggregate demand, and promotes the view that inflation is ultimately a problem that can be solved by regulating the money supply.

Microeconomics and Macroeconomics:

Microeconomics and macroeconomics are two main branches of economics. Microeconomics studies the behavior of individuals, households, and firms in making economic decisions and how these decisions affect markets for goods and services. Macroeconomics, on the other hand, studies economic phenomena as a whole, such as inflation rates, unemployment, economic growth, and fiscal or monetary policies that affect national or global economies. The two branches are interrelated and important for understanding the dynamics that occur in the economy.

New approaches:

Behavioral Economics: The behavioral economics approach combines psychology with economics to understand how people make economic decisions, including decisions that are often irrational. This approach focuses on the psychological, emotional, and social factors that influence consumer choices, and how these tendencies can lead to economic outcomes that differ from those predicted by traditional economic models that assume that individuals always make rational decisions. 

Institutional Economics: Institutional economics highlights the role of institutions, laws, and norms in shaping economic outcomes. This approach recognizes that social rules and structures—such as government policies, laws, and culture—have a major influence on how markets function and how individuals and firms interact. Strong institutions can support economic efficiency, while weak institutions can lead to less efficient markets or even market failure. 

Development Economics: Development economics focuses on issues of economic growth and poverty in developing countries. This approach analyzes the factors that influence poverty, income inequality, and efforts to improve people’s well-being through development policies. Economists involved in this field often examine how to improve the quality of education, health, and infrastructure, and how developing countries can achieve sustainable economic growth.