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History of economic thought
Economic thought goes back thousands of years.
The ancient Greek, Xenophon, used the word oikonomikos.
He was talking about skilful or clever ways to manage land and households. We could call many of Aristotle's political writings economics, although he did not use the word. The English word economics first appeared in the 19th century.
Early economic thought was all about the meaning of wealth or being rich.
A country or nation's wealth depended on its owning precious metals.
During medieval times, trading between nations grew, and a new social class appeared. These were merchants, people who made their money through the buying and selling of goods. They saw the economy as a way to make the state strong. For them the nation's wealth depended on stocks of gold and the size of the population.
Modern economics was really born in the 19th century. Adam Smith is often called the Father of Modem Economics.
Smith realised that a nation's wealth depended on its ability to produce goods. The value of these goods depended on the cost of production. The cost of production depended on the cost of workers, raw materials and land. This was really the first example of macroeconomics.
Smith and other classical economists were writing at a time of great change. The industrial revolution had begun. Paper money began to replace precious metals. The middle classes were growing stronger. Economists' theories echoed these changes. They wrote about the division of labour.
For classical economists, the value of goods depends on the cost of production. However, the price of goods is not always the same as their real cost. Later economists developed new theories to explain this weakness in classical economics. These are known as the neoclassical economists and they were writing at the end of the 19th and early 20th centuries.
In neoclassical economics, supply and demand make the economy work.
Consumers want satisfaction from their resources (time and money). Firms want profit. In neoclassical economics, this is the basic relationship in the economy. These ideas are still the basis of economic thinking today.