The definition of the word economy

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This article is about the word in goods and services meaning. For other uses, see Economy (disambiguation).

An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the production, use, and management of scarce resources.^[1] A given economy is a set of processes that involves its culture, values, education, technological evolution, history, social organization, political structure, legal systems, and natural resources as main factors. These factors give context, content, and set the conditions and parameters in which an economy functions. In other words, the economic domain is a social domain of interrelated human practices and transactions that does not stand alone.

Economic agents can be individuals, businesses, organizations, or governments. Economic transactions occur when two groups or parties agree to the value or price of the transacted good or service, commonly expressed in a certain currency. However, monetary transactions only account for a small part of the economic domain.

Economic activity is spurred by production which uses natural resources, labor and capital. It has changed over time due to technology, innovation (new products, services, processes, expanding markets, diversification of markets, niche markets, increases revenue functions) such as, that which produces intellectual property and changes in industrial relations (most notably child labor being replaced in some parts of the world with universal access to education).

Etymology

The word economy in English is derived from the Middle French’s yconomie, which itself derived from the Medieval Latin’s oeconomia. The Latin word has its origin at the Ancient Greek’s oikonomia or oikonomos. The word’s first part oikos means «house», and the second part nemein means «to manage».^[2]

The most frequently used current sense, denoting «the economic system of a country or an area», seems not to have developed until the 1650s.^[3]

History

Earliest roots

As long as someone has been making, supplying and distributing goods or services, there has been some sort of economy; economies grew larger as societies grew and became more complex. Sumer developed a large-scale economy based on commodity money, while the Babylonians and their neighboring city states later developed the earliest system of economics as we think of, in terms of rules/laws on debt, legal contracts and law codes relating to business practices, and private property.^[4]

The Babylonians and their city state neighbors developed forms of economics comparable to currently used civil society (law) concepts. They developed the first known codified legal and administrative systems, complete with courts, jails, and government records.^[5]

The ancient economy was mainly based on subsistence farming.^[6] The Shekel are the first to refer to a unit of weight and currency, used by the Semitic peoples. The first usage of the term came from Mesopotamia circa 3000 BC. and referred to a specific mass of barley which related other values in a metric such as silver, bronze, copper, etc. A barley/shekel was originally both a unit of currency and a unit of weight, just as the British Pound was originally a unit denominating a one-pound mass of silver.^[7]

For most people, the exchange of goods occurred through social relationships. There were also traders who bartered in the marketplaces. In Ancient Greece, where the present English word ‘economy’ originated,^[2] many people were bond slaves of the freeholders.^[8] The economic discussion was driven by scarcity.^{[citation needed]}

Middle Ages

In the Middle Ages, what is now known as an economy was not far from the subsistence level. Most exchange occurred within social groups. On top of this, the great conquerors raised what we now call 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. The discoveries of Marco Polo (1254–1324), Christopher Columbus (1451–1506) and Vasco da Gama (1469–1524) led to a first global economy. The first enterprises were trading establishments. In 1513, the first stock exchange was founded in Antwerp. Economy at the time meant primarily 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 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.

Industrial Revolution

The first economist in the true modern meaning of the word was the Scotsman Adam Smith (1723–1790) who was inspired partly by the ideas of physiocracy, a reaction to mercantilism and also later Economics student, Adam Mari.^[9] 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 labor. 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 Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, and transport had a profound effect on the socioeconomic and cultural conditions starting in the United Kingdom, then subsequently spreading throughout Europe, North America, and eventually the world.^[10] The onset of the Industrial Revolution marked a major turning point in human history; almost every aspect of daily life was eventually influenced in some way.
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, production and division of labor enabled the mass production of goods.

20th century

The contemporary concept of «the economy» wasn’t popularly known until the American Great Depression in the 1930s.^[11]

After the chaos of two World Wars and the devastating Great Depression, policymakers searched for new ways of controlling the course of the economy.^{[citation needed]} This was explored and discussed by Friedrich August von Hayek (1899–1992) and Milton Friedman (1912–2006) who pleaded for a global free trade and are supposed to be the fathers of the so-called neoliberalism.^[12][13] However, the prevailing view was that held by John Maynard Keynes (1883–1946), who argued for a stronger control of the markets by the state. The theory that the state can alleviate economic problems and instigate economic growth through state manipulation of aggregate demand is called Keynesianism in his honor.^[14] In the late 1950s, the economic growth in America and Europe—often called Wirtschaftswunder (ger: economic miracle) —brought up a new form of economy: mass consumption economy. In 1958, John Kenneth Galbraith (1908–2006) was the first to speak of an affluent society in his book The Affluent Society.^{[citation needed]} In most of the countries the economic system is called a social market economy.^[15]

21st century

With the fall of the Iron Curtain and the transition of the countries of the Eastern Bloc towards democratic government and market economies, the idea of the post-industrial society is brought into importance as its role is to mark together the significance that the service sector receives instead of industrialization. Some attribute the first use of this term to Daniel Bell’s 1973 book, The Coming of Post-Industrial Society, while others attribute it to social philosopher Ivan Illich’s book, Tools for Conviviality. The term is also applied in philosophy to designate the fading of postmodernism in the late 90s and especially in the beginning of the 21st century.

With the spread of Internet as a mass media and communication medium especially after 2000–2001, the idea for the Internet and information economy is given place because of the growing importance of e-commerce and electronic businesses, also the term for a global information society as understanding of a new type of «all-connected» society is created. In the late 2000s, the new type of economies and economic expansions of countries like China, Brazil, and India bring attention and interest to different from the usually dominating Western type economies and economic models.

Elements

Types

A market economy is one where goods and services are produced and exchanged according to demand and supply between participants (economic agents) by barter or a medium of exchange with a credit or debit value accepted within the network, such as a unit of currency.^[16] A planned economy is one where political agents directly control what is produced and how it is sold and distributed.^[17] A green economy is low-carbon and resource efficient. In a green economy, growth in income and employment is driven by public and private investments that reduce carbon emissions and pollution, enhance energy and resource efficiency, and prevent the loss of biodiversity and ecosystem services.^[18] A gig economy is one in which short-term jobs are assigned or chosen on-demand. The global economy refers to humanity’s economic system or systems overall.^{[citation needed]} An informal economy is neither taxed nor monitored by any form of government.^[19]

Sectors

The economy may be considered as having developed through the following phases or degrees of precedence:^{[according to whom?]}

• The ancient economy was mainly based on subsistence farming.
• The industrial revolution phase lessened the role of subsistence farming, converting it to more extensive and mono-cultural forms of agriculture in the last three centuries. The economic growth took place mostly in mining, construction and manufacturing industries. Commerce became more significant due to the need for improved exchange and distribution of produce throughout the community.
• In the economies of modern consumer societies phase there is a growing part played by services, finance, and technology—the knowledge economy.

In modern economies, these phase precedences are somewhat differently expressed by the three-sector model:^[20]

• Primary: Involves the extraction and production of raw materials, such as corn, coal, wood and iron.
• Secondary: Involves the transformation of raw or intermediate materials into goods e.g. manufacturing steel into cars, or textiles into clothing.
• Tertiary: Involves the provision of services to consumers and businesses, such as baby-sitting, cinema and banking.

Other sectors of the developed community include:

• the public sector or state sector (which usually includes: parliament, law-courts and government centers, various emergency services, public health, shelters for impoverished and threatened people, transport facilities, air/sea ports, post-natal care, hospitals, schools, libraries, museums, preserved historical buildings, parks/gardens, nature-reserves, some universities, national sports grounds/stadiums, national arts/concert-halls or theaters and centers for various religions).
• the private sector or privately run businesses.
• the voluntary sector or social sector.^[21]

Indicators

The gross domestic product (GDP) of a country is a measure of the size of its economy, or more specifically, monetary measure of the market value of all the final goods and services produced.^[22] The most conventional economic analysis of a country relies heavily on economic indicators like the GDP and GDP per capita. While often useful, GDP only includes economic activity for which money is exchanged.^{[citation needed]}

Due to the growing importance of the financial sector in modern times,^[23] the term real economy is used by analysts^[24][25] as well as politicians^[26] to denote the part of the economy that is concerned with the actual production of goods and services,^[27] as ostensibly contrasted with the paper economy, or the financial side of the economy,^[28] which is concerned with buying and selling on the financial markets. Alternate and long-standing terminology distinguishes measures of an economy expressed in real values (adjusted for inflation), such as real GDP, or in nominal values (unadjusted for inflation).^[29]

Studies

The study of economics are roughly divided into macroeconomics and microeconomics.^[30] Today, the range of fields of study examining the economy revolves around the social science of economics,^[31][32] but may also include sociology,^[33] history,^[34] anthropology,^[35] and geography.^[36] Practical fields directly related to the human activities involving production, distribution, exchange, and consumption of goods and services as a whole are business,^[37] engineering,^[38] government,^[39] and health care.^[40]

See also

• Economic history
• Economic system

References

Further reading

• Friedman, Milton, Capitalism and Freedom, 1962.
• Rothbard, Murray, Man, Economy, and State: A Treatise on Economic Principles, 1962.
• Galbraith, John Kenneth, The Affluent Society, 1958.
• Mises, Ludwig von, Human Action: A Treatise on Economics, 1949.
• Keynes, John Maynard, The General Theory of Employment, Interest and Money, 1936.
• Marx, Karl, Das Kapital, 1867.
• Smith, Adam, An Inquiry into the Nature and Causes of the Wealth of Nations, 1776.

What Is an Economy?

An economy is a complex system of interrelated production, consumption, and exchange activities that ultimately determines how resources are allocated among all the participants. The production, consumption, and distribution of goods and services combine to fulfill the needs of those living and operating within the economy.

An economy may represent a nation, a region, a single industry, or even a family.

Understanding Economies

An economy encompasses all of the activities related to the production, consumption, and trade of goods and services in an entity, whether the entity is a nation or a small town.

No two economies are identical. Each is formed according to its own resources, culture, laws, history, and geography. Each evolves according to the choices and actions of the participants.

These decisions are made through some combination of market transactions and collective or hierarchical decision-making.

Types of Economies

In the modern world, few nations are purely market-based or purely command-based. But most lean toward one or the other of these models.

Market-Based Economies

Market-based or «free market» economies allow people and businesses to freely exchange goods and services according to supply and demand.

The United States is mostly a market economy. Producers determine what’s sold and produced, and what prices to charge. If they expect to succeed, they will produce what consumers want and charge what consumers are willing to pay.  

Through these decisions, the laws of supply and demand determine prices and total production. If consumer demand for a specific product increases, production tends to increase to satisfy the demand. The increased demand causes prices to rise until consumers balk and cut back on their purchases. Demand for the product will then decline and prices will decline with it.

This constant tug of supply and demand allows a market economy a tendency to naturally balance itself. As the prices in one sector rise with demand, the money and labor needed to fill that demand shift to those places where they’re needed.

Command-Based Economies

Command-based economies depend on a central government that controls the production levels, pricing, and distribution of goods.

In such a system, the government owns industries deemed essential on behalf of the consumers who use them. Competition among companies is discouraged or banned. Prices are controlled.

Communism requires a command-based economy. Contemporary examples include Cuba and North Korea.

A command-based economy attempts to supersede the workings of supply and demand.

Mixed Economies

Pure market economies rarely exist in the modern world since there’s usually some degree of government intervention or central planning. Even the United States could be considered a mixed economy. It may not mandate production but it has ways to influence it. For example:

• In late 2021, President Joe Biden ordered 50 million gallons of oil released from the nation’s Strategic Oil Reserves with the stated aim of forcing gasoline prices lower by increasing its supply.
• In 2022, the Federal Reserve imposed a series of interest rate increases on the nation’s banks. The purpose was to raise interest rates throughout the economy in order to reduce demand for loans and therefore reduce inflation in the costs of goods and services.

In truth, most of the world’s developed economies mix market-based and command-based models.

China had a command economy only until 1978 when it began a series of reforms that encouraged private enterprise.

Studying Economies

The study of economies and the factors affecting economies is called economics. The discipline of economics can be broken into two major areas of focus, microeconomics, and macroeconomics.

Microeconomics

Microeconomics studies the behavior of individual people and businesses in order to understand why they make the economic decisions they do and how these decisions affect the larger economic system.

Microeconomics studies how a particular value is attached to a product or service. It examines how individuals coordinate and cooperate with each other in business.

Microeconomics tends to focus on economic tendencies, such as how individual choices and actions impact changes in production.

Clearly, principles of psychology and marketing influence microeconomics.

Macroeconomics

As the name implies, macroeconomics studies the big picture.

Macroeconomics includes the study of economy-wide factors such as the effect of rising prices or inflation on the economy. It seeks to track and understand the financial indicators that clarify an economy’s success or failure over time, such as gross domestic product (GDP), changes in unemployment, and consumer spending.

In short, macroeconomics studies how the economy as a whole behaves.

Economic Indicators

As noted above, macroeconomics is the study of the big picture and that picture is incomplete without a set of economic indicators. These are some of the most closely-watched of those indicators.

Gross Domestic Product (GDP)

Gross domestic product is the total value of all of the completed goods and services produced by an economy during a period of one year.

The gross domestic product of the United States was about $23 trillion in 2021.

Unemployment

The Unemployment Report estimates the number of people who are working for pay during a given period. More importantly, the number is tracked over time in order to determine whether unemployment is worsening.

In the U.S., the Bureau of Labor Statistics (BLS) publishes a monthly unemployment report that breaks down how many people are working, the average number of hours they are working, and their average earnings. This is used to produce the unemployment rate.

Inflation (or Deflation)

Inflation in consumer prices is measured and tracked so that problems in the economy can be pinpointed. If the rate of inflation is outpacing the rate of income growth, the economy is in trouble. Inflation can be negative, too, but overall deflation is relatively rare.

The BLS also publishes a key inflation report for the U.S. The Consumer Price Index tracks the costs of goods and services from month to month. It breaks down its report into the vital areas of consumer spending, such as food, energy, and rent costs.

Those numbers determine the rate of inflation.

Balance of Trade

An economy’s balance of trade is a comparison of the amount of money that is spent on imports of goods and services and the amount of money it earns on goods and services it exports. It is measured primarily by recording all of the products that pass through the Customs office of a country.

A nation achieves a positive balance of trade when it exports more than it imports. It has a negative balance of trade when it buys more than it sells.

Neither is necessarily good or bad. A nation may have a negative balance of trade because foreign businesses are heavily investing in its future. A nation with a positive balance of trade may have protectionist policies in place that could hurt it in the long run.

The U.S. had a balance of trade deficit in 2021 of about $859.1 billion, up $182.4 billion from the previous year, according to the U.S. Bureau of Economic Analysis.

History of the Concept of Economy

The word economy derives from the Greek term for household management and the word is still used in that context.

Economics as an area of study was touched on by philosophers in ancient Greece, notably Aristotle, but the modern study of economics began in 18th century Europe, particularly in Scotland and France.

Development of Modern Economics

The Scottish philosopher and economist Adam Smith, who in 1776 wrote a landmark book called The Wealth of Nations, was thought of in his own time as a moral philosopher. He and his contemporaries traced the evolution of economies from prehistoric bartering systems to money-driven and eventually credit-driven economies. 

During the 19th century, the development of technology and the growth of international trade created stronger ties among countries, a process that accelerated into the Great Depression and World War II. After 50 years of the Cold War, the late 20th and early 21st centuries have seen a renewed globalization of economies.

The Bottom Line

An economy is a community that is observed by an analysis of its allocation of resources. Every individual and family in the community has a contribution to make. In return, each expects a share of the goods and services provided by other members of the community.

In modern times, the functioning of an economy is analyzed and quantified by economists.

Britannica Dictionary definition of ECONOMY

Britannica Dictionary definition of ECONOMY

always used before a noun

English[edit]

Alternative forms[edit]

• oeconomy, œconomy (obsolete)

Etymology[edit]

From Middle English yconomye, yconomy, borrowed via Old French [Term?] or Medieval Latin^[1] from Latin oeconomia, from Ancient Greek οἰκονομία (oikonomía, “management of a household, administration”), from οἶκος (oîkos, “house”) + νέμω (némō, “distribute, allocate”) (surface analysis eco- +‎ -nomy). 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.

Pronunciation[edit]

• (Received Pronunciation) IPA^(key): /iːˈkɒn.ə.mi/
• (General American) enPR: ĭkŏʹnəmē, əkŏʹnəmē IPA^(key): /iːˈkɑ.nə.mi/, /ɪˈkɑ.nə.mi/, /əˈkɑ.nə.mi/
• Rhymes: -ɒnəmi

Noun[edit]

economy (countable and uncountable, plural economies)

1. Effective management of a community or system, or especially its resources.
   1. (obsolete) The regular operation of nature in the generation, nutrition and preservation of animals or plants.

      animal economy, vegetable economy

   2. (obsolete) System of management; general regulation and disposition of the affairs of a state or nation, or of any department of government.
   3. (obsolete) A system of rules, regulations, rites and ceremonies.

      the Jewish economy

   4. (obsolete) The disposition or arrangement of any work.

      the economy of a poem

2. The study of money, currency and trade, and the efficient use of resources.
3. Frugal use of resources.

   economy of word

   • April 5, 1729, Jonathan Swift, letter to St. John

     I have no other notion of economy than that it is the parent to liberty and ease.

4. The system of production and distribution and consumption. The overall measure of a currency system; as the national economy.

   • 2013 August 31, “Horns of a trilemma”, in The Economist, volume 408, number 8851:

     An economy open to free movement of capital can keep a fixed exchange rate, for example, only by subjugating monetary-policy goals to its defence—by raising interest rates sharply, say, when capital outflows put downward pressure on the currency. Yet the trilemma also implies that an economy can enjoy both free capital flows and an independent monetary policy, so long as it gives up worrying about its exchange rate.

5. (theology) The method of divine government of the world. (See w:Economy (religion).)
6. (US) The part of a commercial passenger airplane or train reserved for those paying the lower standard fares; economy class.
7. (archaic) Management of one’s residency.

Derived terms[edit]

[edit]

• economics
  • macroeconomics
  • microeconomics

Translations[edit]

Adjective[edit]

economy (not comparable)

1. Cheap to run; using minimal resources; representing good value for money; economical.

   He bought an economy car.

   Economy size.

Adverb[edit]

economy (not comparable)

1. (US) In or via the part of a commercial passenger airplane reserved for those paying the lower standard fares.

   Numerous web sites have tips on how to fly economy.

Translations[edit]

References[edit]

Anagrams[edit]

• monoecy