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From the History of Economics

Read the text without consulting the dictionary and give a short written summary of the text in English.

By now you may be asking yourself: “Why should I study economics?” There are several good reasons, all of which involve you. Some have to do with you as an individual, some with you as an earner and spender, and some with you as a citizen.

As a member of a society you live in, there is no escaping economics. The food you eat, the home you live in, the clothes you wear, and the way you spend your leisure time all are affected, in part, by economic forces. The study of economics will help you to understand these forces better and enable you to live a fuller life.

Economic forces also affect decisions in the world of business. In fact, one common definition of economics is “the study of how people make a living”. The more you know about the subject, the better carrier decision you will be able to make.

Economics will also help you to fulfill your responsibilities as a citizen in a democracy. As a voter, you will be asked to express your opinion on many questions involving economics issues. The study of economics will help you deal these questions intelligently.

The development of modern economics began in the 17^th century. Since that time economists have developed methods for studying and explaining how individuals, business and nations use their available economic resources.

German historical school of economics

Branch of economic thought, developed chiefly in Germany in the later 19th century, in which the economic situation of a nation is understood as the result of its total historical experience.

Objecting to the deductively reasoned “laws” of classical economics, exponents of the historical approach examined the development of the entire social order, of which economic motives and decisions were only one component. They viewed government intervention in the economy as a positive and necessary force. Early founders, including Wilhelm Roscher and Bruno Hildebrand, developed the idea of the historical method and sought to identify general stages of economic development through which all countries must pass. Members of the later school, notably Gustav von Schmoller (1813–1917), carried out more detailed historical research and attempted to discover cultural trends through historical inquiry.

Austrian school of economics

Body of economic theory developed by several late 19th-century Austrian economists.

Carl Menger (1840–1921) published a paper on their new theory of value in 1871. The concept of value was subjective, the source of a product's value being its ability to satisfy human wants. The actual value depended on the utility derived by the consumer from the product in its least important use (marginal utility). The theory was also applied to production and pricing. Other founders of the school included Friedrich von Wieser (1851–1926) and Eugen von Böhm-Bawerk (1851–1914).

John Maynard Keynes, Baron Keynes of Tilton

British economist, known for his revolutionary theories on the causes of prolonged unemployment.

The son of the distinguished economist John Neville Keynes (1852–1949), he served in the British treasury during World War I and attended the Versailles Peace Conference. He resigned in protest over the Treaty of Versailles, denouncing its provisions in The Economic Consequences of the Peace (1919), and he returned to teaching at the University of Cambridge. The international economic crisis of the 1920s and '30s prompted him to write The General Theory of Employment, Interest and Money (1935–36), the most influential economic treatise of the 20th century. It refuted laissez-faire economic theories, arguing that the treatment for economic depression was either to enlarge private investment or to create public substitutes for private investment. Keynes argued that in mild economic downturns, monetary policy in the form of easier credit and lower interest rates might stimulate investment. More severe crises called for deliberate public deficits (see deficit financing), either in the shape of public works or subsidies to the poor and unemployed. Keynes's theories were put into practice by many Western democracies, notably by the U.S. in the New Deal. Interested in the design of new international financial institutions at the end of World War II, Keynes was active at the Bretton Woods Conference in 1944.

Monetarism

School of economic thought that maintains that the money supply is the chief determinant of economic activity.

Milton Friedman and his followers promoted monetarism as an alternative to Keynesian economics (see John Maynard Keynes); their economic theories became influential in the 1970s and early 1980s. Monetarism holds that a change in the money supply directly affects and determines production, employment, and price levels, though its influence is evident only over a long and often variable period of time. Fundamental to the monetarist approach is the rejection of fiscal policy in favour of “monetary rule.” Friedman and others asserted that fiscal measures such as tax-policy changes or increased government spending have little significant effect on the fluctuations of the business cycle. They argued that government intervention in the economy should be kept to a minimum and asserted that economic conditions would change before specific policy measures designed to address them could take effect. Steady, moderate growth of the money supply, in their view, offered the best hope of assuring a constant rate of economic growth with low inflation. U.S. economic performance in the 1980s cast doubts on monetarism, and the proliferation of new types of bank deposits made it difficult to calculate the money supply.

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