In the social sciences
is the study of human choice behavior and the methodology used to make associated investment and production decisions; in particular, though not limited to, how those choices and decisions determine the allocation of scarce resources and their effect on production
, and consumption
. Natural resource extraction
/emissions represent particularly difficult problems as they affect the natural capital
(or "resource base") available to market participants and increasingly dominate infrastructural decisions and international trade policy. Also, the psychology
of decision making, and the influence that persons have on each other in social groups, especially herd mentality
and rational choice theory
. A majority of Nobel Prize in Economics
winners in recent years have studied these problems, some previously dismissed as "intangibles
" or "externalities
Economics is largely taught as five specific "schools" of thought:
- Classical economics, which provided the framework for later developments in microeconomics and both Neoclassical and Marxian theory, focusing on relative competitive advantage, the utility of competitive markets, land development, the labour theory of value and the division of labour
- Institutional economics, which focuses on the role of institutional design and how institutions shape consumer choice and affect economic performance
- Marxian economics, which studies the cause of economic crises, the source of value in economics, class relations in society, distribution of the surplus product and surplus value, and the labour theory of value
- Neoclassical economics, which focuses on price theory, constrained maximization as faced by both producers and consumers, marginal utility and rational choice theory as well as a macroeconomic focus on technical analysis of aggregate measures such as Gross Domestic Product and narrow technical models whose objective is "balanced growth" between human capital and "economic capital" and which deals with complex economic questions largely by abstracting them into debt to GDP ratio and other fragile technical measures
- Environmental economics which narrowed from many independent analyses in the 20th century towards a clear and internationally-agreed set of standards from 1990 on, including the Kyoto Protocol and culminating in UN study of The Economics of Ecosystems and Biodiversity, the Convention on Biological Diversity and changes to the United Nations System of National Accounts to begin to reflect risks to, and value added by, nature's services.
A pragmatic, reactive and regulatory view of economics also may be inferred from monetary policy and central bank decision-making, culminating in the Basel Accords especially Basel III. These represent an attempt to distinguish levels of risk (from risk-reducing insurance to risk-increasing speculation) and to ensure disclosure and transparency of all risks (including environmental and political risks that can be measured). In these international legal agreements, advocates from each of the well known schools of economic thought work out solutions based on an essentially political process in international forums such as the International Monetary Fund and Financial Stability Board , wherein countries with better perceived actual economic performance exercise more influence. The assessment of performance includes debt to GDP ratio but also other measures such as deforestation and greenhouse gas emissions and labour unrest, which generally would disqualify even high-GDP low-debt countries from political influence. Two notable exceptions, the Bank of China and US Federal Reserve, reflect the military and political power of those countries and tend to have influence regardless. On some issues, notably climate change, if both are intransigent, the world cannot find agreement.
During the Cold War, geopolitics and economics decisions could not be separated: Allies of the Soviet Union had to adopt one guiding theory of economics represented by the COMECON accords, while United States allies followed the Bretton Woods accords. To some degree, modern economic and business strategy debates still reflect a divide in thinking between Anglo-American and Eurasian models. For decades, differences on economic theories were part of the rationale for maintaining a mutual assured destruction stance for every human society on Earth, and possibly the Earth itself. This underscores the political contentiousness of economic models and terminology. See political economy for a more detailed overview of the interactions between politics and economics and of economic history.
Leaving aside the specific difficult economics problems and theories of the day, in the abstract, economics can be defined various ways:
- It studies how individuals and societies seek to satisfy needs and wants through incentives, choices, and allocations within a given set of resource constraints. Alfred Marshall in the late 19th century informally described economics as "the study of man in the ordinary business of life".
- It is the study of how societies allocate scarce resources amongst unlimited demand. I believe in this definition completely because this definition unlike most include clean drinking water a part of economics because it is a scarce resource. There are many more unconventional examples that should be a part of the definition that are excluded when you specifically define it the way so many people define it.
- It is the study of how humans make a living, while ecology is the study of how other species make a living (due to Lynn Margulis).
The word "economics" is from the Greek words οἶκος [oikos], meaning "family, household, estate", and νόμος [nomos], or "custom, law", and hence literally means "household management" or "management of the state". An economist is a person using economic concepts and data in the course of employment, or someone who has earned a university degree in the subject.
Economics is often divided into microeconomics (at the level of individual choices) vs macroeconomics (aggregate results), but also descriptive vs normative, mainstream vs heterodox, and by subfield such as econometrics which involves the statistical and mathematical representation of the subject. All of these ways of considering the subject imply a series of assumptions have been made and that a model has been envisaged, either in the minds of the economists or in fact by means of equations, diagrams, matrices, electrical mechanical or hydraulic analogies, etc. These analogies are rampant in neoclassical economics in which the economy is assumed to be more machine-like at larger scales, but are often disavowed in Marxist and Institutionalist theories.
Economics has many direct applications in business, personal finance, and government. Theories and empirical techniques developed as a part of economics have, given that economics is fundamentally about human decision making, been applied to non-monetary choices in fields as diverse as criminal behavior, scientific research, death, politics, health, education, family, dating, etc. A more general statement of economics applied so broadly is that it is the study of regret, however expressed psychologically or economically. See investor's regret, which in this view is the central concept.
In economics, Economic systems is the study and analysis of organizing production, distribution, consumption and investment and the study of optimal resource allocation and institutional design. Traditionally the study of economic systems was based on a dichotomy between market economies and planned economies, but contemporary studies compare and contrast a number of different variables, such as ownership structure (Public, Private or Collective), economic coordination (planning, markets or mixed), management structure (Hierarchy versus adhocracy), the incentive system, and the level of centralization in decision-making.
In economics, business is the social science of managing people to organize and maintain collective productivity toward accomplishing particular creative and productive goals, usually to generate revenue and to increase the wealth of the business's owners. The definition of wealth is hotly debated and is a major divide between the schools. For instance, green economics tends to emphasize health and certainty of positive environment conditions as the foundation of wealth, while neoclassical abstractions tend to assume that any lack can be made up for with sufficient cash on hand.
In economics, sustainability is the study of reducing the natural capital impact of resource extraction and emissions to a degree low enough that no significant ecosystem is disrupted and (in theory) can continue to sustain natural life and economies forever. It has become more important as governments have asserted their duty to charge for harms to the commons and risks to public health and order, and to generally steward natural ecosystems to pass them intact to the next generation, a duty inherent in every major world religion. Neoclassical economics tends to view government's stewardship role as restricted to currency stability and inflation prevention, but all other theories (back to Adam Smith) emphasize its role in education, defense, infrastructure and justice. Green and Marxist theories simply define these classical concerns, and stability and health and even inflation, more fundamentally than the neoclassicals. In business, sustainability is a key marketing, pricing, talent recruitment, brand reputation, efficiency and partnership forming factor.