The History of Economics

The word “economics” is derived from “oikonomokos”, which means skilled in household management. Although the word is very old, the discipline of economics as we understand it today is a relatively recent development. Modern economic thought emerged in the 17-th and 18-th centuries as the western world began its transformation from an agrarian to an industrial society.

The classical school of economic theory began with the publication in 1776 of Adam Smith’s monumental work “The Wealth of Nations”. Adam Smith formulated economics as a science and started the doctrine of free business. He stated economic laws which explained the work of the free market. According to his philosophy, the major principles of economic liberalism or freedom were free trade, self-interest, private property, nongovernment intervention, and competition. Individuals were free to seek their own occupations, were free to enter any business. Self-interest was the motivating force of the economy. For example, to increase economic welfare, an individual decided to produce goods and sell them for a profit. But he automatically benefited the community as well, because he had purchased raw materials, provided employment, and supplied goods or services.

The principles and doctrines of classical economics were developed over many years by various economists and certain basic assumptions were accepted as the foundation of economic analysis. Thus, Jean Baptiste Say, a French economist, developed the theory that demand is affected by supply. This is often referred to as Say’s law.

Karl Marx was the founder of scientific communism. Marx saw capitalism as an evolutionary phase in economic development. He believed that capitalism would ultimately destroy itself and be succeeded by a world without private property. He stated that the market system allows capitalists, the owners of means of production, to exploit workers and deny them a fair share of what they produce. He predicted movement of society toward communism, in which the workers own the means of production and thus have no need to exploit labor for profit.

Another famous economist was John Maynard Keynes. In 1936 John M.Keynes broke from the classical tradition with the publication of “General Theory of Employment, Interest, and Money”. This British economist was primarily responsible for the early development of the income-expenditure analysis of the economy. Subsequently many others improved and expanded the original Keynesian presentation, and it has developed into an excellent tool of economic analysis. Modern monetary, fiscal, and psychological policies are difficult to understand without the knowledge of the principles of the income-expenditure analysis. These principles have been widely accepted. It was Keynes who insisted on government intervention in the economy. Keynes arguments proved the modern rationale for the use of government spending and taxing to stabilize economy.

Despite the great differences between the past and the present, the basic economic problems which society faces remain the same: what to produce, how much to produce, and what method to use in allocating goods and services. These basic problems are common to all societies no matter what level of economic development they have reached. Economists have been trying to find the right answers for many years. A new school of ideas emerges as changes in the economy give fresh understanding and make existing doctrines obsolete.

Ex.8. Form adjectives and adverbs of the following words and give their Russian equivalents. Follow the models:

Model 1 Noun +” -ic “ - adjective

cube -cubic

economy - ________________ philosophy -_______________

strategy -_________________ base -_______________

atmosphere -_________________ history -_______________

Model 2 Noun + “-al” – adjective

centre -central

industry -________________ origin -________________

monument -________________ culture -________________

form -________________ globe -________________

Model 3 Adjective + “-ly” – adverb

relative -relatively

recent -________________ free -________________

ultimate -________________ wide -_________________

subsequent -________________ possible -_________________

Model 4 base word +“ –ward(s) - adverb

home -homeward

after -__________________ in -_________________

south -__________________ for -_________________

up -__________________ out -__________________

back -__________________ to -__________________

west -__________________ north -__________________

Ex.9. Match synonyms in A and B.

A B

1. recent 1. main

2. emerge 2. egoism

3. transformation 3. look for

4. major 4. modern

5. self-interest 5. appear

6. seek 6. change

7. occupation 7. supposition

8. welfare 8. influence

9. basic 9. business

10.ultimately 10.well-being

11.assumption 11.fundamental

12.affect 12.finally

13.succeed 13.benefit

14.interest 14.reasoning

15.argument 15.follow

Ex.10. Find the antonym of the first word in each line.

1. recent a) great; b) important; c) old; d)new

2. major a) principal; b) minor; c)difficult; d)active

3. private a) public; b) own; c)total; d)busy

4. to increase a) to affect; b)to create; c)to reduce; d)to follow

5. to purchase a) to expand; b) to find; c) to sell; d) to buy

6. various a) identical; b)final; c)necessary; d)free

7. to destroy a) to succeed; b)to create; c) to bring about; d)to seek

8. to accept a) to deny; b) to use; c) to face; d) to insist on

9. expenditure a) rationale; b) supply; c) share; d) earnings

10. obsolete a) fresh; b) subsequent; c) different; d)monumental

Ex.11. Translate the following word combinations into Russian.

a financial state – to be in a nervous state – a gaseous state – to state a problem – to state a law – an independent state – to govern a state – welfare state – a state organization – the United States of America; a free choice – to make free use of the library – to be free to seek occupations – to be free in the evening – in a free and easy manner – free of charge – free education – a free electron – to feel free – to free the world from the threat of war – to free from taxes; academic interest –deep interest – to show interest – to take interest in economics – to be of interest for students – in the national interest – in the interest of peace – to act in one’s own interest – without interest – business interest – to work for a company at a certain interest – to receive interest from a business – a rate of interest – a conflict of interests – politics doesn’t interest me; to buy property – individual property – intellectual property – private property – a man of property – a property tax – a chemical property ; for the benefit of the nation – to derive a benefit from something -- economic benefits – tax benefits – old age benefit -- unemployment benefit – to benefit from trade – to benefit people; to accept the theory fully – to accept the responsibility – to accept an invitation – to accept a post -- to accept equipment – to accept a person as a business partner – to accept a check – to be generally accepted; a fair share in business – lion’s share -- a share of responsibility – a share in making a decision – ordinary shares – preference shares – to share the money equally between two partners – to share one’s opinion – to share a house with other people ; organic matter – reading matter – the matter of the report – a serious matter – a matter of importance – to give attention to the matter – What’s the matter?—the matter is that – it’s no easy matter – for that matter – no matter – it doesn’t matter at all – as a matter of fact.

Ex.12. Match A and B.

A	B
Adam Smith	broke from the classical school of economics.
Jean Baptiste Say	founded the classical school of economic theory.
Karl Marx	predicted movement of society toward communism.
John M.Keynes	stated the laws of free market.
	emphasized the role of self-interest, private property and competition
	developed the principles of income-expenditure analysis
	denied government intervention in the economy.
	believed in a world without private property.
	developed the law of demand and supply.
	insisted on government intervention in the economy.

Ex.13. Translate the following sentences into Russian.

1. Despite the great varieties of economic structures it has become possible to group them into four broad categories.

2. Very often a son follows his father into an occupation and uses the same skills and tools.

3. In economic theory competition is referred to as the regulatory tool of capitalism.

4. Jean Baptiste Say stated that changes in market prices emerged from changes in demand and supply.

5. Although economic planning is also used in societies where property is privately owned, it is assumed that a fully planned economy means one in which all the important means of production are publicly owned.

6. In answer to this argument it has been stated that the division of labor makes job in one industry very similar to jobs in another.

7. New fiscal and monetary measures have been taken to stimulate both private and public investment.

8. In economics many theories have been derived from the assumption that people tend to maximize their material welfare.

9. The subject matter of economics is human behavior which is very difficult to predict.

10. Despite the fact that the company has expanded and needs skilled labor power it hasn’t made expenditures on training.

11. It was Adam Smith who insisted on the role of competition in the market economy.

12. We don’t assume that pure competition has ever existed in the production and sale of most goods and services.

13. A lot of economists deny K.Marx’s argument that capitalism will be succeeded by a world without private property.

14. The private nonprofit sector of the economy has greatly expanded in recent years and decades. This expansion is affected by the investment policy of the state.

15. Traditional solutions to the economic problems of production and distribution still remain in primitive agricultural communities.

16. The amount of the taxes that the company hasn’t paid is being widely commented on in business community.

17. It has become common practice for European states to own shares in multinational projects.

18. The use of gas instead of diesel in power generation has been insisted on by environmentalists.

19. Most of us are employees and are paid for our work. Thus ability of people to buy in relatively large amounts is in large part influenced by wages.

20. The matter is that the demand for natural resources is derived from the demand for products of such resources.

21. The state of economic thought is influenced by the level of development of the society, thus some economic tools have already become obsolete.

22. The expansion of capitalism was followed by a large-scale machine production.

23. It is the introduction of metallic money that brought into operation a series of laws which remain effective for all countries and historical epochs.

Ex.14. Answer the following questions.

1. What is the origin and meaning of the word “economics”?

2. When did the economic theory emerge?

3. Why is Adam Smith spoken of as the founder of the classical school of economics?

4. What principles of economic liberalism were stated by Adam Smith?

5. Can you prove that certain assumptions of classical economics were accepted as the basis of economic analysis?

6. What theory was developed by K.Marx?

7. Why are John M.Keynes’ economic analyses so important?

8. What basic economic problems does society face?

Ex.15. Fill in the blanks choosing the proper English word from those given before the text.

(expenditures; derived; private; expand; states; spending; succeeded)

1. In recent years economists have (…) the “multiplier principle” for the analysis of the effect of (…) and investing on the national income. This principle (…) that a certain investment, either by a (…) investor or by the government will be (…) by a series of consumer expenditures. These (…) will exceed the original investment and will thus (…) the national income.

(occupations; assumed; incomes; self-interest; seeks; benefits)

2. It is (…) that the motive for economic activity is (…). Each unit in the market economy (…) what is best for itself. Firms act in ways which, they believe, can bring maximum (…). Workers choose those (…) and locations which offer the highest wages. Consumers spend their (…) on those things which bring the maximum satisfaction.

(compete; property; shares; competition; economy)

3. Market (…) is based on the institution of private (…), on the profit motive and on (…). Business firms compete for (…) of the consumer’s money. In the markets for productive resources firms (…) for scarce materials and energy.

Ex.16. Translate the text in writing. Use a dictionary.

Publication of Adam Smith’s “The Wealth of Nations” in 1776 has been referred to as “the effective birth of economics as a separate discipline». The book defined land, labor, and capital as three factors of production and the major contributors to a nation’s welfare. Smith described the market mechanism as an “invisible hand” that leads all individuals towards the production of benefit for community as a whole. He argued that in competitive markets social interests are affected and advanced by self-interest. A.Smith shared some of the Physiocrats’ ideas, but denied the assumption that only agriculture was productive.

The general approach that Smith initiated was called political economy and later classical economics. It included such notables as Thomas Malthus, David Ricardo, and John Stuart Mill.

While Adam Smith placed emphasis on the production of income, David Ricardo focused on the distribution of income among landowners, workers and capitalists. He stated that the growth of population and capital pushes up rents and holds down wages and profits because of fixed supply of land.

Thomas Robert Malthus used the idea of diminishing returns (сокращающийся доход) to explain low living standards. Population, he argued, increased geometrically, while the production of food increased arithmetically. The force of a rapidly growing population against a limited amount of land meant diminishing returns to labor. The result was chronically low wages which were followed by the low standard of living. According to Malthus unemployment was affected by the economy’s tendency to limit its spending by saving too much, a theme that remained forgotten until John Maynard Keynes revived it in the 1930s.

Though John Stuart Mill shared the opinion of the earlier classical economists on many aspects of political economy he pointed to distinct difference between the market’s two roles: allocation of resources and distributing of income. He suggested that the market might be efficient in allocating resources but not in disturbing income. Thus he insisted on the intervention of society.

Ex.17. Translate into English.

Хотя слово «экономика» известно людям с давних времен, экономика как наука появилась только в 17 и 18 веках. Основателем классической школы экономической теории считается Адам Смит. Именно Смит сформулировал экономику как науку и определил законы и принципы работы свободного рынка, такие как свобода выбора рода занятий, частная собственность, собственная выгода, невмешательство государства и конкуренция. Смит считал, что собственная выгода является движущей силой экономики, т.к. на экономическое благосостояние общества в целом значительно влияет личная экономическая заинтересованность предпринимателя.

За работами Адама Смита последовали экономические теории таких ученых как Томас Мальтус, Давид Рикардо, Стюарт Милл и др. Все они внесли значительный вклад в развитие экономической мысли. Многие теории экономистов - классиков приняты за основу экономического анализа.

О Карле Марксе говорят как об основателе теории научного коммунизма. К. Маркс предсказывал крушение капитализма и переход общества к коммунизму: миру без частной собственности и эксплуатации труда.

Однако не все экономисты разделяли учение А.Смита. Джон Мэйнард Кейнс отошел от классической школы. Он настаивал на вмешательстве государства в экономику. Кейнс разработал принципы анализа доходов и расходов. Эти принципы до сих пор считаются важными инструментами современной денежной и налоговой политики государства.

Основные экономические вопросы, с которыми сталкивается любое общество – это: что производить, сколько производить и как производить. Экономисты пытаются найти ответы на эти вопросы уже много лет. Итак, возникают новые экономические идеи и направления.

Ex.18. Agree or disagree with the following statements. Use the introductory phrases from Ex.26 (Unit 1)

1. The science of economics is relatively young.

2. It was Adam Smith who formulated economics as a science.

3. The laws of the free market were originally stated by Jean Baptiste Say.

4. Karl Marx predicted the emergence of the society without private property.

5. John M.Keynes broke from the classical school of economic theory.

6. The basic economic problems have become obsolete nowadays.

Ex.19. Use the words and expressions given below to speak on the following:

1. Adam Smith as the founder of the classical school of economics:

economic thought, emerge, formulate as a science, state principles, free market, self-interest, private property, competition, nongovernment intervention, motivating force, to increase economic welfare, benefit the community, develop doctrines, accept basic assumptions.

2. Karl Marx’ theory of scientific communism:

evolutionary phase in economic development, destroy, be succeeded by, exploit workers, deny a fair share, predict movement toward communism, own the means of production.

3. The role of John M.Keynes in economics:

break from the classical tradition, be primarily responsible for the income-expenditure analysis, improve and expand the presentation, excellent tool of economic analysis, monetary and fiscal policies, insist on government intervention, prove the rationale, government spending and taxing.

4. Basic economic problems:

despite the differences, remain the same, be common to all societies, no matter, find the answer, new ideas emerge, fresh understanding, make obsolete.

Ex.20. Read and study the following information:

Suppose you came across an advertisement that stirred up your imagination. You are willing to apply for a certain position.

What do you do in this case?

1. First of all write an application letter in which you must enlighten the following points:

• The source of information about the post you are applying for.

• Your age and education. How many languages you know (if necessary ).

• Where you have been working and why you are looking for a new job.

• When you could start a new post.

This is an example of an Application letter.

Dear Mrs. Hughes,

I would like to apply for the position of Sales Manager advertised in yesterday’s Standard.

I am 32 years old and was educated at Oxford. I speak English and French fluently in addition to my mother tongue, German.

I am familiar with all types of oil and gas systems used on the Continent and regularly read papers and journals on the subject.

I hope this information will be sufficient for you to consider my application. I should be grateful if you could send me a job description.

Yours sincerely,

Hans Strauss

2. Don’t hurry to send your letter. Write down your CV, enclose it and then post your

message.

CV is an abbreviation for two Latin words – Curriculum Vitae that means a brief account of the main events of a person’s life. Sometimes in the US it’s called Resume.

Here is an example of such Curriculum Vitae:

Name: John Edward Harvey

Age: 27 years old

Date and place of birth: 7th August 1968

Home address: 27 South Street, Stoke Ripton Birnshire, XY 19 LM

Tel. No.: (49675) 223926

Marital Status: married, three daughters, aged 8,9,12

Education:

1979-1987 Ripton Country School

1987-1988 Grant College of Further Education

1987 “A” Level in French, German, History

1988 Certificate in Business Studies

Experience: 1987 and 1988 Summer job working at a local Supermarket

Interests: Swimming, tennis, hockey, music

3. Suppose you are looking for a job and have chosen a position of secretary at Nissan

company from the advertisement in the local paper. Write an application letter and enclose your CV in it.

Do you know?