Economics

• In economics, the study of how we manage our resources and the production and exchange of goods and services is crucial
• The word "economics" is derived from the Greek word Oikonomia, meaning "household management"
• Economics evolved gradually, with the first true economists appearing at the end of the 18th century
• Economics was initially known as "political economy" and later as "economic science" before being popularized as "economics"
• British economist Lionel Robbins defined economics as "the science which studies human behavior as a relationship between ends and scarce means which have alternative uses"
• Economies are man-made and are dependent on the rational or irrational behavior of humans, making economics more aligned with soft sciences like psychology and sociology
• Modern economics emerged as a distinct discipline in the 18th century, particularly with the publication of "The Wealth of Nations" by Adam Smith in 1776
• Adam Smith's analysis of the market economy set the standard with the concept of the "invisible hand" guiding the market based on self-interested individuals
• Economists identified specific areas to examine, leading to the development of macroeconomics and microeconomics
• Macroeconomics focuses on the economy as a whole at national or international levels, while microeconomics looks at interactions of individuals and firms within the economy
• Various schools of thought evolved in economics, with differences in opinions leading to approaches like laissez-faire and state intervention in the economy
• Specialised exchange surfaces are required in multicellular organisms for efficient gas exchange of carbon dioxide and oxygen
• John Locke argued that wealth is derived from labor, not trade
• In the 17th century, François Quesnay and his followers, the physiocrats, argued that land and agriculture are the only sources of economic prosperity
• David Hume argued that public goods should be paid for by governments
• Quesnay produced his Economic Table, the first analysis for the workings of a whole economy—the "macroeconomy"
• Private property is fundamental to capitalism
• Types of property include material goods and intellectual property like patents or written text
• Historically, material property has been organized in three ways: held in common, held and used collectively, or held in private with each person free to do with it as they choose
• Modern economists justify private property on pragmatic grounds, arguing that the market can't operate without some division of resources
• Aristotle argued that property should be private to ensure maintenance and improvement, and to allow for generosity
• John Locke advocated for individual rights to property, stating that as God gave us dominion over our bodies, we also have dominion over the things we make
• Karl Marx rejected private property, seeing it as a means for capitalists to expropriate the labor of the proletarian
• Property rights confer exclusive rights over a particular resource to the owner
• Governments reserve the right to override private ownership when necessary, for reasons ranging from infrastructure needs to national safety issues
• The market price is determined by supply and demand, with no moral dimension according to prevailing economic theory
• Thomas Aquinas argued for a just price in the marketplace, one that includes a decent profit but excludes excessive profiteering
• Aquinas concluded that the just price is the price the buyer freely agrees to pay, given honest information
• The issues of price and morality continue to be debated today, with discussions on CEO bonuses, minimum wage, and government intervention in pricing
• Thomas Aquinas founded a studium generale (a type of university) in Naples, Italy in 1272
• Aquinas' philosophical works were influential in paving the way to the modern world
• Aquinas' key works include:

  • 1256–59 Disputed Questions on Truth
  • 1261–63 Summa contra Gentiles
  • 1265–73 Summa Theologica
• In a cashless society, people use credit cards, electronic transfers, and mobile-phone chips for transactions
• Money remains essential in all transactions, providing status and power to individuals, families, and nations
• Barter economies rely on the double coincidence of wants, while money allows for easier transactions without this requirement
• There are two kinds of money: commodity money (e.g., gold coins) and fiat money (e.g., paper bank notes)
• The Medici Bank in Florence, founded in 1397, differed from existing banks by its size, decentralized network, and large deposits from wealthy savers
• The success of the Medici Bank corresponds to economic concepts like economies of scale, diversification of risk, and asset transformation
• In the banking system, there are three main actors: the depositor, the borrower, and the bank
• Banks use customer deposits as borrowed money (leverage) to multiply profits and make a high return on invested capital