From Wikipedia, the free encyclopedia

Gross domestic product in 2005

An economy is the system of human activities related to the production, distribution, exchange, and consumption of goods and services of a country or other area.

The composition of a given economy is inseparable from technological evolution, civilization's history and social organization, as well as from Earth's geography and ecology, e.g. ecoregions which represent different agricultural and resource extraction opportunities, among other factors.

Economy refers also to the measure of how a country or region is progressing in terms of product.

The word "economy" can be traced back to the Greek word οικονομία, "one who manages a household", derived from οικος, "house", and νέμω, "distribute (especially, manage)". From οικονόμος was derived οικονομία, which had not only the sense "management of a household or family" but also senses such as "thrift", "direction", "administration", "arrangement", and "public revenue of a state". The first recorded sense of the word "economy", found in a work possibly composed in 1440, is "the management of economic affairs", in this case, of a monastery. Economy is later recorded in other senses shared by οικονομία in Greek, including "thrift" and "administration". What is probably the most frequently used current sense, "the economic system of a country or an area", seems not to have developed until the 19th or 20th century.

• The fields of study exploring, registering and describing the economy or a part of it, belong in general to the social sciences and include economics as well as branches of history (economic history) or geography (economic geography).
• Practical fields directly related to the human activities involving production, distribution, exchange, and consumption of goods and services as a whole, range from engineering to management and business administration to applied science to finance.
• All kind of professions, occupations, economic agents or economic activities, contribute to the economy.
• Consumption, saving and investment are core variable components in the economy and determine market equilibrium.
• There are three main sectors of economic activity: primary, secondary and tertiary.

Main article: Three-sector hypothesis

See also: List of recognized economic sectors

The economy includes several sectors (also called industries), that evolved in successive phases.

• The ancient economy was mainly based on subsistence farming.

• The industrial revolution lessened the role of subsistence farming, converting it to more extensive and monocultural forms of agriculture in the last three centuries. The economic growth took place mostly in mining, construction and manufacturing industries.

• In the economies of modern consumer societies there is a growing part played by services, finance, and technology -- the (knowledge economy).

In modern economies, there are three main sectors of economic activity:

• Primary sector: Involves the extraction and production of raw materials, such as corn, coal, wood and iron. (A coal miner and a fisherman would be workers in the primary sector.)
• Secondary sector: Involves the transformation of raw or intermediate materials into goods e.g. manufacturing steel into cars, or textiles into clothing. (A builder and a dressmaker would be workers in the secondary sector.)
• Tertiary sector: Involves the provision of services to consumers and businesses, such as baby-sitting, cinema and banking. (A shopkeeper and an accountant would be workers in the tertiary sector.)

More details about the various phases of economic development follow. As this process was far from being homogenous geographically, the balance between these sectors differs widely among the various regions of the world.

The ancient economy was mainly based on subsistence farming. The exchange of goods happened within a barter economy. In Ancient Greece, when the word 'economy' arose, the majority of people were bond slaves of the freeholders. Economic discussion was driven by scarcity. Aristotle (384-322 B.C.) was the first to differentiate between a use value and an exchange value of goods. (Politics, Book I). The exchange ratio he defined was not only the expression of the value of goods but of the relations between the people involved in trade. For most of the time in history economy therefore stood in opposition to institutions with fixed exchange ratios as reign, state, religion, culture and tradition.

In Medieval times the great conquerors raised venture capital (from ventura, ital.; risk) to finance their captures. The capital should be refunded by the goods they would bring up in the New World. Merchants such as Jakob Fugger (1459-1525) and Giovanni di Bicci de' Medici (1360-1428) founded the first banks. The discoveries of Marco Polo (1254-1324), Christopher Columbus (1451-1506) and Vasco de Gama (1469-1524) led to a first^{[citation needed]} World economy, meaning international trade between the continents. The first enterprises therefore were trading establishments. In 1513 the first stock exchange was founded in Antwerpen. Economy at the time meant firstly trade.

The European captures became branches of the European states, the so-called colonies. The rising nation-states Spain, Portugal, France, Great Britain and the Netherlands tried to control the trade through custom duties and taxes in order to protect their national economy. The so-called mercantilism (from mercator, lat.: merchant) was a first approach to intermediate between private wealth and public interest. The secularization in Europe allowed states to use the immense property of the church for the development of towns. The influence of the nobles decreased. The first Secretaries of State for economy started their work. Bankers like Amschel Mayer Rothschild (1773-1855) started to finance national projects such as wars and infrastructure. Economy from then on meant national economy as a topic for the economic activities of the citizens of a state.

The first economist in the true meaning of the word was the Scotsman Adam Smith (1723-1790). He defined the elements of a national economy: products are offered at a natural price generated by the use of competition - supply and demand - and the division of labour. He maintained that the basic motive for free trade is human self interest. The so-called self interest hypothesis became the anthropological basis for economics. Thomas Malthus (1766-1834) transferred the idea of supply and demand to the problem of overpopulation. The United States of America became the place where millions of expatriates from all European countries were searching for free economic evolvement. In Europe wild capitalism started to replace the system of mercantilism (today: protectionism) and led to economic growth. The period today is called industrial revolution because the system of production and division of labour enabled the mass production of goods.

Especially in England the ideas of Adam Smith became reality while the economization—the process of always diminishing the efforts of production—led to mass poverty, starvation, urbanization and pauperization of the population. Karl Marx (1818-1883) and the German industrialist and philosopher Friedrich Engels (1820-1895) described economy as the "system of capitalism". The exploitation of labour and nature by the capitalist is creating a surplus value. The capital will accumulate itself and finally destroy the competition. Therefore the system of communism should liberate the economy from the reign of capital. The first centrally planned economy was established after the Russian Revolution of 1917 by Lenin. Other states launched social security systems in order to minimize the effects of uncontrolled capitalism, called Manchester capitalism.

In order to build up the countries destroyed in two World Wars new definitions of economy were needed. Friedrich August von Hayek (1899-1992) and Milton Friedman (1912-2006) pleaded for a global free trade and are supposed to be the fathers of the so called neoliberalism. In contrast, John Maynard Keynes (1883-1946) argued for a stronger control of the markets by the state. The theory that the state could alleviate economic problems and instigate economic growth through state manipulation of aggregate demand is called Keynesianism. In the late 1950s the economic growth in America and Europe—often called Wirtschaftswunder (ger.: economic miracle)—brought up a new form of economy: consumption. In 1958 Kenneth Galbraith (1908-2006) was the first to speak of an affluent society. In most of the countries the economic system is called a social market economy.

The globalization pushes national economies and rules in the backyard. The global and controversial discussion on the politics of the World Bank, the World Trade Organization and Global Players within the World Economic Forum as well as the discussion of global ecology and sustainability issues influences the definition of economy. Joseph E. Stiglitz today defines economy to be a global public good. Economists like Peter Barnes and Alexander Dill are reclaiming the commons and give new definitions including new phenomena like freeware. Game theorists such as Ernst Fehr and Klaus M. Schmidt are disproving the self-interest hypothesis. A so-called gift economy is the topic for widespread activities of grassroot movements as well as of the credit programs of Nobel laureate Muhammed Yunus. The Wealth of Nations Report 2006 of the World Bank for the first times tracks social and human capital. The change of definitions is to be continued. There's also neoclassical economics.

There are number of ways to measure economic activity of a nation. These methods of measuring economic activity include:

• Consumer spending
• Exchange Rate
• Gross domestic product
• GDP per capita
• GNP
• Interest Rate
• National Debt
• Rate of Inflation
• Unemployment
• Balance of Trade

The GDP - Gross domestic product of a country measures the size of its Economy.

• Ecological economics
• Economics
• Economic system
• Economist
• Economic history (includes list by country)
• Primary sector of industry
• Secondary sector of industry
• Tertiary sector of industry
• Quaternary sector of industry

• Friedman, Milton, Capitalism and Freedom, 1962.
• Galbraith, John Kenneth, The Affluent Society, 1958.
• Keynes, John Maynard, The General Theory of Employment, Interest and Money, 1936.
• Smith, Adam, An Inquiry into the Nature and Causes of the Wealth of Nations, 1776.

• Aristotle, Politics, Book I-IIX, translated by Benjamin Jowett [1]
• Barnes, Peter, Capitalism 3.0, A Guide to Reclaiming the Commons, San Francisco 2006 [2]
• Dill, Alexander, Reclaiming the Hidden Assets, Towards a Global Freeware Index, Global Freeware Research Paper 01-07, 2007 [3]
• Fehr Ernst, Schmidt, Klaus M., The Economics Of Fairness, Reciprocity and Altruism - experimental Evidence and new Theories, 2005, Discussion PAPER 2005-20, Munich Economics [4]
• Marx, Karl, Engels, Friedrich, 1848, The Communist Manifesto [5]·
• Stiglitz, Joseph E., Global public goods and global finance: does global governance ensure that the global public interest is served? In: Advancing Public Goods, Jean-Philippe Touffut, (ed.), Paris 2006, pp. 149/164. [6]
• Where is the Wealth of Nations? Measuring Capital for the 21st Century. Wealth of Nations Report 2006, Ian Johnson and Francois Bourguignon, World Bank, Washington 2006. [7]