Thursday, December 3, 2015

Introduction to Economics

From birth till death, man struggles to survive relentlessly. All throughout the life man proceeds overcoming various obstacles. The subject, economics, helps in numerous ways to overcome these problems or obstacles on man's path to tread upon. Economics plays a very significant role to obtain prosperity for human, society or country. To know and learn about economics is, therefore, important.

What is Economics?

With the development of knowledge and science, the sphere of economics has grown as well. As a combination of the knowledge of economics from both the past and the present, economics, as a discipline is now much developed or enriched. Among those who have presented economics as a subject or discipline, Adam Smith, David Ricardo, John Stuart Mill think of economics as a science of wealth. This trend of economics is known as classical economics.

Definition of Economics Given by Adam Smith:

"Economics is a science that explores the nature and reason of the wealth of the nations." 'Economics grows centering wealth or resources. So, to acquire resources is the main purpose of man's economic activities. The weakness of Smith's definition lies in: 1. how economics would satiate man's unlimited wants by means of limited resources, there is no mention to that in this definition. 2. Although resources have been emphasized in this definition, man and his activities have been ignored. 3. To acquire resources have been given importance, whereas by which means resources can be acquired, that has not been referred to. 4. In this definition, resources stand for goods, but there is no mention of services.

Definition of Economics Given by Professor Marshall:

Marshall emphasizes more on human welfare than resources. He says, "Economics discusses the general activities of human life." The prior topics of discussion of economics are income of man and the expenditure of that money for the purpose of satisfying wants. That means, the main purpose of economics is to accomplish human welfare. Marshall has only discussed about the accomplishment of human welfare in real life. Nowadays, the problem of scarcity is the main problem of economics. In Marshall's definition, this basic problem of the humans has not been taken into consideration.

Definition of Economics Given by Professor L. Robins:

Professor L. Robins has defined Economics in a way that has been much more acceptable. In his opinion, "Economics is a science that analyses human behavior related to the combination of unlimited wants and alternatively usable scarce resources." The characteristics of this definition are as follows: 1. Human wants are unlimited and the nature and volume of the wants are different. 2. The resource and time to fulfill the wants are very limited. 3. One very important part of discussion of economics is how to adjust unlimited wants by the means of limited resources. 4. As the supply of the resources is limited, we have to try to satisfy our varied wants with the same resources. 5. Wants are fulfilled as per their priority. For these reasons, this definition is considered to be a more suitable one.

Criticism of the Definition of Robins:

1. Robins has observed the subject matter of economics from an extended point of view. 2. Humans like some things in their personal and social lives that are not discussed in economics. 3. It is not referred that the main purpose of economic activities is human welfare. 4. The social position of economics has not been discussed in Robins' definition. 5. The economic development of the modern world has not been included in his definition. 6. Robins has only discussed economics with price but skipped to discuss national income, employment system, investment, etc. In the end it can be said that Robins' definition is comparatively complicated. No theory in economics is above criticism. Therefore, in spite of the flaws, the definition provided by Robins is more acceptable.

History of development economics

Today the economics we study was not so organized in earlier times. The way of living of humans was much simpler in ancient societies. Food, clothing and habitation-these, only, were the basic needs of humans. The modes of exchanging goods were very limited. Basically, physical labor was the only means for production. During the time of the prophet Moses, that means, at around 2500 BC, in Hebrew civilization, in religious scriptures and in the books of philosophy, there have been some scattered discussions about economics. Income, religion, morality, philosophy and economics were discussed all together at that time. There was no individual existence of economics as a discipline.
The basis of today's European civilization is constructed upon the thoughts of the Greek thinkers, Roman laws and the Christian religion. It was in Greece that Aristotle and other philosophers accepted the idea of individual ownership for the first time, and individual ownership upon land had been established. In the history of Greek civilization, Aristotle is taken to be the first economist. Special attention has been paid on the division of labor, business and the use of money. The Greek civilization is mainly a civilization based on city-states. Slavery was an accepted fact at that time. The inhabitants of the cities were mainly traders and mechanics. The English word, economics, has come from the Greek word Okonimia. Okonomia means the Management of the Household. Plato (427-347 BC) and Aristotle (384-322 BC) were the two famous scholars of the Greek civilization. These two thinkers have discussed about varied fundamental topics of economics, along with individual property, the wages of the laborers, slavery and interest.
The Romans are known better as martial and successful state administrators. The Romans had mainly adopted the economic guidance of the Greeks as their own. In the Roman society, agriculture was considered as one very great and honorable occupation. And the Roman philosophers considered lending money at interest as a crime equal to that of murdering.
In ancient India, at 4th BC, the issues of politics, society, economics and martial factors have been cast light upon in Koutillya's 'Political Economy'. From the last part of the 16th century till the last part of the 18th century, (1590-1780), the expansion that occurred in international trade in England, France and Italy, that is termed as Mercantilism. With the target of increasing the wealth of the country, the power of the state and making of surplus in trade, the merchants of England exported more while imported very little. Goods produced in England were exported in different countries of the world in huge quantities and valuable metals/minerals (gold, silver, diamonds, etc) were imported. By the middle of the 18th century, the French took their stance against the luxurious lifestyle of the rich people of that country, excessive taxation, and the mercantilism of England and propagated the tenet of Physiocracy. In the opinion of the physiocrats, agriculture (along with mining and pisciculture) is the productive sector. On the other hand industry and trading were considered as non-productive sectors.
This way, during the ancient and middle ages, economics has been discussed in a scattered way. Economics received the recognition as a separate discipline when the British economist, Adam Smith in 1776, wrote his famous book, "An Inquiry into the Nature and Causes of the Wealth of Nations". The basis of today's economics is this book of Smith.

Different Economic Systems

It is the expectation of every country of the world to enhance the welfare of the country solving the economic problems. Economic system stands for economic laws and provisions, philosophy, rules and regulations and the environment in which the economic activities take place. There are many economic systems in the world.
For example,
a. Capitalist economy,
b. Socialistic economy,
c. Mixed economy and
d. Islamic economy.

Capitalist Economy

In this system, the materials of production are under individual proprietorship and the entire economic activities are run by automated price system, mainly by nongovernmental initiatives and without any governmental interference. This type of financial system is termed as capitalistic economy. By the end of the 18th century, through the French Revolution, there was the initiation of the capitalistic economy in whole of Europe. Classical economist Adam Smith and his followers support this system.

Characteristics of Capitalistic Economy

The major characteristics of the capitalistic economy are given below:
1. Private Property: In capitalistic economy, majority of the resources or the materials for production of the society are under individual ownership. Individual exchanges or consumes these.
2. Private Enterprise: In capitalism maximum economic activities, e.g.- production, exchange, distribution, consumption, etc are run by individual enterprise. Governmental interference is not expected in these enterprises.
3. Free Competition: In this system, many farms get involved in free competition regarding the production of goods and services. As a result, the prices of the goods are less and newer discoveries are possible.
4. Automatic Price System: In capitalism the demand and supply in the market automatically decide the price of the good.
5. Profit: the producer, in capitalism, produces with the target of the highest profit possible.
6. Consumers' Liberty: Every consumer is free to buy and consumer goods according to his/her individual choice wish and taste. The producer supplies as per the demand of the consumer.
7. Inequality of Income: In a capitalistic society there remains a greater inequality between the rich and the general people in the society.
8. Role of the Government: Government, in this system, remains occupied with the maintenance of the law and order, protecting the state, and securing the rights of wealth.
In different sectors of economy, through mutual dependence, the activities of the capitalistic economy are run. It is not selflessly, rather everyone; according to their own interests perform the economic activities.

Socialistic or Command Economy

In socialistic economy, the state holds the ownership of maximum of the resources and factors of production in the society. State is the owner of majority of the industries and institutions of production and they are run by the directions of the government. The state decides which products will be produced and in what quantity, how and for whom.

Characteristics of Socialistic Economy

1. State Ownership of Resources: In socialistic economy, state is the owner of most of the resources (land, industries, mines, etc) and factors of production.
2. Central Planning’s: The state performs all the tasks alongside the production and distribution. All the planning’s taken by the center or the state.
3. Lack of Consumers' Freedom: In socialism, in maximum cases, the consumers consume the goods decided by the state to be produced. No consumer can consume anything spending money on his/her own will.
4. Lack of Free Competition: As the production, in maximum cases is run by state enterprise, there is no free competition between a large numbers of private entrepreneurs.
5. Absence of Private Profit: In socialism, instead of individual profit, production is run for national demand and overall welfare. So, no industry is developed here by individual or private enterprises. Agriculture, industries and trade, everything is under the state's control, so there is no private profit.

Mixed Economic System

The economy in which individual ownership and private enterprise exists side by side with state enterprise and control, that is known as the mixed economy. That is, in this financial system, private and state enterprises play a combined role. In maximum countries of the world, mixed economy is existent.

Characteristic of Mixed Economy

In different countries of the world, the characteristics of mixed economy are of different kinds. Usually, the following characteristics of mixed economy are observed:
1. The Private and State Ownership of Resources: In mixed economy an individual can freely possess and enjoy his/her movable and immovable properties and also trade those off. Side by side with that, the government runs the institutions that provide the public properties (highway) and services (healthcare).
2. Private Enterprise: In mixed economy, maximum economic activities along with production, trading, distribution and consumption, are organized and conducted by private enterprises.
3. State Enterprise: In mixed economy, state enterprises are taken alongside private enterprises. The vital/basic and heavy industries, national security and institutions that are significantly public-related, are conducted by the state.
4. Profit: It is possible to earn huge profits by conducting maximum economic activities in the private sector.
5. Freedom of the Consumer: In this system, the consumer enjoys complete freedom regarding the trading and consuming general products. However, if the government feels it necessary, it can influence the price of the goods and control the production and consumption of any good as per its necessity. For example: smoking, production of drugs and consumption, etc.
Many think of this mixed economy as a developed financial system since pure capitalism or socialism can be found nowhere in the world.

Islamic Economic System

The economic system that is built upon the fundamental rules and regulations of Islam is known as the Islamic economic system.

Characteristics of the Islamic Economic System:

In Islamic economic system it is suggested to use all the resources in the world for the welfare of human kind. The characteristics of this system worth mentioning are as follows:
1. Related to All the Areas of Human Life: Islamic economic system discusses about all the sectors of human life instead of any separated or partial sectors of life.
2. There is No Discrimination in Human Rights and Responsibilities: In Islamic economic system there is no inequality or discrimination regarding the rights, duties and responsibilities between individual and the community. The reason behind this is, in this system, every individual is given honor and the fullest rights to live.
3. Conducted on the Basis of Islamic Law: The basic principles of Islamic economies depend on the Islamic laws. It has been told to solve the economic problems as per the main philosophy of Islam, the direction and guidance of the Holy Quran and the Prophet (SM).
4. The Utmost Use of Resources for Human Welfare: In Islamic economic system, all the natural and human resources of a country are referred to as under people's possession and are to be utilized for people's welfare.
5. Depository Ownership of the Resources: Regarding the use of resources, man can only consider himself as a depositor of the Creator. For this reason, economic prosperity and success cannot create corruption and self-indulgence in human character.
6. Interest-Free Deposit: Islamic economy does not permit taking interests. Here the banking system offers interest-free deposits.
7. Jakat and Fitra: In this system, a distribution system based upon reason and logic has been propagated. With this target, money is taken from the rich people in the form of Jakat and Fitra and is distributed among the poor.

End

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