Fall Asleep While Learning About Economics

In this episode of the I Can't Sleep Podcast, drift off to sleep while learning about economics. Did you know the word economics comes from the Greek word for... zzzzzzzz. Wait, what was I saying? Oh, right—economics is sure to do the job of putting you to sleep. The only thing I vaguely remember is something about a Greek word. Happy sleeping!

Transcript

Welcome to the I Can't Sleep podcast,

Where I read random articles from across the web to bore you to sleep with my soothing voice.

I'm your host,

Benjamin Boster.

Today's episode is from a Wikipedia article titled,

Economics.

Economics is a social science that studies the production,

Distribution,

And consumption of goods and services.

Economics focuses on the behavior and interactions of economic agents and how economies work.

Microeconomics analyzes what is viewed as basic elements within economics,

Including individual agents and markets,

Their interactions,

And the outcomes of interactions.

Individual agents may include,

For example,

Households,

Firms,

Buyers,

And sellers.

Macroeconomics analyzes economies as systems where production,

Distribution,

Consumption,

Savings,

And investment expenditure interact,

And factors affecting it,

Factors of production such as labor,

Capital,

Land,

And enterprise,

Inflation,

Economic growth,

And public policies that have impact on these elements.

It also seeks to analyze and describe the global economy.

Other broad distinctions within economics include those between positive economics,

Describing what is,

And normative economics,

Advocating what ought to be,

Between economic theory and applied economics,

Between rational and behavioral economics,

And between mainstream economics and heterodox economics.

Economic analysis can be applied throughout society,

Including business,

Finance,

Cybersecurity,

Healthcare,

Engineering,

And government.

It is also applied to such diverse subjects as crime,

Education,

The family,

Feminism,

Law,

Philosophy,

Politics,

Religion,

Social institutions,

War,

Science,

And the environment.

The earlier term for the discipline was political economy,

But since the late 19th century it has commonly been called economics.

The term is ultimately derived from the ancient Greek oikonomia,

Which is a term for the way,

Nomos,

To run a household,

Oikos,

Or in other words,

The know-how of an oikonomikos,

Or household or homestead manager.

Derived terms such as economy can therefore often mean frugal or thrifty.

By extension then,

Political economy was the way to manage a polis or state.

There are a variety of modern definitions of economics.

Some reflect evolving views of the subject,

Or different views among economists.

Scottish philosopher Adam Smith,

1776,

Defined what was then called political economy as an inquiry into the nature and causes of the wells of nations.

In particular,

As a branch of the science of a statesman or legislator with the two-fold objectives of providing a plentiful revenue or subsistence for the people,

And to supply the state or commonwealth with a revenue for the public services.

Jean-Baptiste Say,

1803,

Distinguishing the subject matter from its public policy uses,

Defined it as the science of production,

Distribution,

And consumption of wealth.

On the satirical side,

Thomas Carlyle,

1849,

Coined the dismissal science as an epithet for the classical economics,

In this context commonly linked to the pessimistic analysis of Malthus,

1798.

John Stuart Mill,

1844,

Delimited the subject matter further.

The science which traces the laws of such of the phenomena of society as arise from the combined operations of mankind for the production of wealth,

In so far as those phenomena are not modified by the pursuit of any other object.

Alfred Marshall provided a still widely cited definition in his textbook Principles of Economics,

1890,

That extended analysis beyond wealth and from the societal to the microeconomic level.

Economics is a study of man in the ordinary business of life.

It inquires how he gets his income and how he uses it.

Thus it is on the one side the study of wealth,

And on the other,

And more important side,

A part of the study of man.

Lionel Robbins,

1932,

Developed implications of what has been termed perhaps the most commonly accepted current definition of the subject.

Economics is the science which studies human behavior as a relationship between ends and scarce means,

Which have alternative uses.

Robbins described the definition as not classificatory in picking out certain kinds of behavior,

But rather analytical in focusing attention on a particular aspect of behavior,

The form imposed by the influence of scarcity.

He affirmed that previous economists have usually centered their studies on the analysis of wealth,

How wealth is created,

Production,

Distributed,

And consumed,

And how wealth can grow.

But he said that economics can be used to study other things,

Such as war,

That are outside its usual focus.

This is because war has the goal of winning it as a sought-after end,

Generates both costs and benefits,

And resources,

Human life and other costs,

Are used to attain a goal.

If the war is not winnable,

Or if the expected costs outweigh the benefits,

The deciding actors,

Assuming they are rational,

May never go to war,

A decision,

But rather explore other alternatives.

Economics cannot be defined as the science that studies wealth,

War,

Crime,

Education,

And any other field economic analysis can be applied to,

But as the science that studies a particular common aspect of each of those subjects,

They all use scarce resources to attain a sought-after end.

Some subsequent comments criticized the definition as overly broad,

And failing to limit its subject matter to analysis of markets.

From the 1960s,

However,

Such comments abated as the economic theory of maximizing behavior and rational choice modeling expanded the domain of the subject to areas previously treated in other fields.

There are other criticisms as well,

Such as in scarcity not accounting for the macroeconomics of high unemployment.

Gary Becker,

A contributor to the expansion of economics into new areas,

Described the approach he favored as combining the assumptions of maximizing behavior,

Stable preferences,

And market equilibrium,

Used relentlessly and unflinchingly.

One commentary characterizes the remark as making economics an approach rather than a subject matter,

But with great specificity as to the choice process and the type of social interaction that such analysis involves.

The same source reviews a range of definitions included in Principles of Economics textbooks and concludes that the lack of agreement need not affect the subject matter that the text treats.

Among economists,

More generally,

It argues that a particular definition presented may reflect the direction toward which the author believes economics is evolving,

Or should evolve.

Many economists,

Including Nobel Prize winners James M.

Buchanan and Ronald Coase,

Reject the method-based definition of Robins and continue to prefer definitions like those of Say in terms of its subject matter.

Ha-Joon Chang has,

For example,

Argued that the definition of Robins would make economics very peculiar because all other sciences define themselves in terms of the area of inquiry or object of inquiry,

Rather than the methodology.

In the biology department,

It is not said that all biology should be studied with DNA analysis.

People study living organisms in many different ways,

So some people will perform DNA analysis,

Others might analyze anatomy,

And still others might build game-theoretic models of animal behavior.

But they are all called biology because they all study living organisms.

According to Ha-Joon Chang,

This view that the economy can and should be studied in only one way,

For example by studying only rational choices,

And going even one step further and basically redefining economics as a theory of everything,

Is peculiar.

Questions regarding distribution of resources are found throughout the writings of the Boetian poet Hesiod,

And several economic historians have described Hesiod as the first economist.

However,

The word oikos,

The Greek word from which the word economy derives,

Was used for issues regarding how to manage a household,

Which was understood to be the landowner,

His family,

And his slaves,

Rather than to refer to some normative societal system of distribution of resources,

Which is a more recent phenomenon.

Xenophon,

The author of the Economicus,

Is credited by philologues for being the source of the word economy.

Joseph Schumpeter describes 16th and 17th century scholastic writers,

Including Tomás de Marcado,

Luis de Molina,

And Juan de Lugo,

As coming nearer than any other group to being the founders of scientific economics,

As to monetary,

Interest,

And value theory within a natural law perspective.

Two groups who later were called mercantilists and physiocrats more directly influenced the subsequent development of the subject.

Both groups were associated with the rise of economic nationalism and modern capitalism in Europe.

Capitalism was an economic doctrine that flourished from the 16th to 18th century in a prolific pamphlet literature,

Whether of merchants or statesmen.

It held that a nation's wealth depended on its accumulation of gold and silver.

Nations without access to mines could obtain gold and silver from trade,

Only by selling goods abroad and restricting imports other than of gold and silver.

The doctrine called for importing inexpensive raw materials to be used in manufacturing goods,

Which could be exported,

And for state regulation to impose protective tariffs on foreign manufactured goods and prohibit manufacturing in the colonies.

Physiocrats,

A group of 18th century French thinkers and writers,

Developed the idea of the economy as a circular flow of income and output.

Physiocrats believed that only agricultural production generated a clear surplus over cost,

So that agriculture was the basis of all wealth.

Thus,

They opposed the mercantilist policy of promoting manufacturing and trade at the expense of agriculture,

Including import tariffs.

Physiocrats advocated replacing administratively costly tax collections with a single tax on income of landowners.

In reaction against copious mercantilist trade regulations,

The physiocrats advocated a policy of laissez-faire,

Which called for minimal government intervention in the economy.

Adam Smith,

1723-1790,

Was an early economic theorist.

Smith was harshly critical of the mercantilist,

But described the physiocratic system with all its imperfections as perhaps the purest approximation to the truth that has yet been published on the subject.

The publication of Adam Smith's The Wealth of Nations in 1776 has been described as the effective birth of economics as a separate discipline.

The book identified land,

Labor,

And capital as the three factors of production,

And the major contributors to a nation's wealth as distinct from the physiocratic idea that only agriculture was productive.

Smith discusses potential benefits of specialization by division of labor,

Including increased labor productivity and gains from trade,

Whether between town and country or across countries.

His theorem that the division of labor is limited by the extent of the market has been described as the core of a theory of the functions of firm and industry,

And a fundamental principle of economic organization.

To Smith has also been ascribed the most important substantive proposition in all of economics,

And foundation of resource allocation theory,

That under competition,

Resource owners of labor,

Land,

And capital seek their most profitable uses,

Resulting in an equal rate of return for all uses in equilibrium,

Adjusted for apparent differences arising from such factors as training and unemployment.

In an argument that includes one of the most famous passages in all economics,

Smith represents every individual as trying to employ any capital they might command for their own advantage,

Not that of the society,

And for the sake of profit,

Which is necessary at some level for employing capital in domestic industry,

And positively related to the value of produce.

In this,

He generally,

Indeed neither intends to promote the public interest,

Nor knows how much he is promoting it.

By preferring the support of domestic to that of foreign industry,

He intends only his own security,

And by directing that industry in such a manner as its produce may be of the greatest value,

He intends only his own gain,

And he is in this,

As in many other cases,

Led by an invisible hand to promote an end which was no part of his intention.

Nor is it always the worse for the society that it was no part of it.

By pursuing his own interest,

He frequently promotes that of the society more effectually than when he really intends to promote it.

The Reverend Thomas Robert Malthus,

1798,

Used the concept of diminishing returns to explain low living standards.

Human population,

He argued,

Tended to increase geometrically,

Outstripping the production of food,

Which increased arithmetically.

The force of a rapidly growing population against a limited amount of land meant diminishing returns to labor.

The result,

He claimed,

Was chronically low wages,

Which prevented the standard of living for most of the population from rising above the subsistence level.

Economist Julian Simon has criticized Malthus' conclusions.

While Adam Smith emphasized production and income,

David Ricardo,

1817,

Focused on the distribution of income among landowners,

Workers,

And capitalists.

Ricardo saw an inherent conflict between landowners,

On the one hand,

And labor and capital,

On the other.

He posited that the growth of population and capital,

Pressing against a fixed supply of land,

Pushes up rents and holds down wages and profits.

Ricardo was also the first to state and prove the principle of comparative advantage,

According to which each country should specialize in producing and exporting goods in that it has a lower relative cost of production,

Rather than relying only on its own production.

It has been termed a fundamental analytical explanation for gains from trade.

Coming at the end of the classical tradition,

John Stuart Mill,

1848,

Parted company with the earlier classical economists on the inevitability of the distribution of income produced by the market system.

Mill pointed to a distinct difference between the market's two roles,

Allocation of resources and distribution of income.

The market might be efficient in allocating resources,

But not in distributing income,

He wrote,

Making it necessary for society to intervene.

Value theory was important in classical theory.

Smith wrote that the real price of everything is the toil and trouble of acquiring it.

Smith maintained that with rent and profit,

Other costs besides wages also enter the price of a commodity.

Other classical economists presented variations on Smith,

Termed the labor theory of value.

Classical economists focused on the tendency of any market economy to settle in a final stationary state made up of a constant stock of physical wealth,

Capital,

And a constant population size.

At its inception as a social science,

Economics was defined and discussed at length as the study of production,

Distribution,

And consumption of wealth by Jean-Baptiste Say in his treatise On Political Economy,

Or The Production,

Distribution,

And Consumption of Wealth,

1803.

These three items were considered only in relation to the increase or diminution of wealth,

And not in reference to their processes of execution.

Say's definition has survived in part up to the present,

Modified by substituting the word wealth for goods and services,

Meaning that wealth may include non-material objects as well.

One hundred and thirty years later,

Lionel Robbins noticed that this definition no longer sufficed because many economists were making theoretical and philosophical inroads in other areas of human activity.

In his essay On Nature and Significance of Economic Science,

He proposed a definition of economics as a study of human behavior,

Subject to and constrained by scarcity,

Which forces people to choose,

Allocate scarce resources to competing ends,

And economize,

Seeking the greatest welfare,

While avoiding the wasting of scarce resources.

According to Robbins,

Economics is the science which studies human behavior as a relationship between ends and scarce means,

Which have alternative uses.

Robbins' definition eventually became widely accepted by mainstream economists and found its way into current textbooks.

Although far from unanimous,

Most mainstream economists would accept some version of Robbins' definition,

Even though many have raised serious objections to the scope and method of economics emanating from that definition.

The body of theory later termed neoclassical economics formed from about 1870 to 1910.

The term economics was popularized by such neoclassical economists as Alfred Marshall and Mary Paley Marshall as a concise synonym for economic science and a substitute for the earlier political economy.

This corresponded to the influence on the subject of mathematical methods used in the natural sciences.

Neoclassical economics systematically integrated supply and demand as joint determinants of both price and quantity in market equilibrium,

Influencing the allocation of output and income distribution.

They rejected the classical economics labor theory of value in favor of a marginal utility theory of value on the demand side and a more comprehensive theory of costs on the supply side.

In the 20th century,

Neoclassical theorists departed from an earlier idea that suggested measuring total utility for a society,

Opting instead for ordinal utility,

Which posits behavior-based relations across individuals.

In microeconomics,

Neoclassical economics represents incentives and costs as playing a pervasive role in shaping decision-making.

An immediate example of this is the consumer theory of individual demand,

Which isolates how prices as costs and income affect quantity demand.

In macroeconomics,

It is reflected in an early and lasting neoclassical synthesis with Keynesian macroeconomics.

Neoclassical economics is occasionally referred to as orthodox economics,

Whether by its critics or sympathizers.

Modern mainstream economics builds on neoclassical economics,

But with many refinements with either supplement or generalize earlier analysis,

Such as econometrics,

Game theory,

Analysis of market failure and imperfect competition,

And the neoclassical model of economic growth for analyzing long-run variables affecting national income.

Neoclassical economics studies the behavior of individuals,

Households,

And organizations called economic actors,

Players,

Or agents,

When they manage or use scarce resources,

Which have alternative uses to achieve desired ends.

Agents are assumed to act rationally,

Have multiple desirable ends inside,

Limited resources to obtain these ends,

A set of stable preferences,

A definite overall guiding objective,

And the capacity of making a choice.

There exists an economic problem,

Subject to study by economic science,

When a decision choice is made by one or more players to attain the best possible outcome.

Keynesian economics derives from John Maynard Keynes,

In particular his book The General Theory of Employment,

Interest,

And Money,

1936,

Which ushered in contemporary macroeconomics as a distinct field.

The book focused on determinants of national income in the short run,

When prices are relatively inflexible.

Keynes attempted to explain in broad theoretical detail why high labor market unemployment might not be self-correcting due to low effective demand,

And why even price flexibility and monetary policy might be unavailing.

The term revolutionary has been applied to the book in its impact on economic analysis.

During the following decades,

Many economists followed Keynes' ideas and expanded on his works.

John Hicks and Alvin Hansen developed the IS-LM model,

Which was a simple formalization of some of Keynes' insights on the economy's short-run equilibrium.

Franco Modigliani and James Tobin developed important theories of private consumption and investment,

Respectively,

Two major components of aggregate demand.

Lawrence Klein built the first large-scale macroeconomic model,

Applying the Keynesian thinking systematically to the U.

S.

Economy.

Thanks for listening to this episode on economics.

Reviews

Wow and I thought accounting was boring (and I’m a non practicing CPA 😂) but economics is even more boring. I remember taking both micro and macro economics in college and not really liking those classes. How did you stay awake reading this? 😊😊😊