Because the term economics has so many connotations, it would be misleading to present a single, rigid definition. Adam Smith, often referred to as the father of economics, defined economics as the “science of wealth.” Alfred Marshall, founder of the Cambridge School of Economics, defined it as the “study of men in the ordinary business of life.” Any undergraduate student taking an introductory economics course would define economics as a study of supply and demand. The scope of economics is also important, because it concerns the supply and demand of goods and services at the individual and institutional level as well as on a national and international basis. A consumer deciding what vegetables to buy at the supermarket and a nation making policy decisions about the flow of imports into its markets are both engaging in economic behaviour.
Economics can be subdivided into three major subfields: economic theory, applied economics, and economic history. Economic theory, also called pure or basic economics, is concerned with the relationships between variables in the economic system (e.g. , if “A” rises, then what will happen to “B”?). An economic theorist will study data, attempt generalizations, and then build these generalizations into theories. The theorist also develops economic principles by constructing a hypothetical situation to determine what should be the consequences of a course of action. Some of the greatest names in economics—Smith, Marshall, Ricardo, Mill, and Marx—were theorists whose ideas are still studied today. Once largely speculative, economic theory is now based on a priori reasoning and, increasingly, on mathematical modules and measurements.
In applied economics, economic theories are applied to Marshall’s “everyday business of life” by public and private policy makers. Policy decisions based on economic knowledge or reasoning are designed to bring about positive results, such as high profits or low taxes. Among applied fields are banking, public finance, labor and industrial finances, land and agricultural economics, and transportation. Some of these applied fields constitute areas of study that can stand alone. For instance, agriculture economics usually commands a separate department in most universities. Agricultural economists usually have their own professional associations and have amassed an enormous amount of literature and data that nearly exceeds that of all other fields of economics combined.
Economic history is the study of economic institutions in varying cultures and time periods. Often regarded as a branch of economics with little relationship to economic theory and applied economics, economic history has slipped into benign neglect in recent years. However, economic historians have discovered that the economic behavior of the past has implications for today. In addition, some of the statistical and mathematical procedures developed for economics have been successfully applied to historical problems.
There are two main branches of economics: microeconomics and macroeconomics. Microeconomics is concerned with the small economic unit, such as the household, a commodity, or an industry. It is dedicated to the study of resource allocation, which in its simplest form relates to the “making ends meet” of the budget-conscious household or corporation. Macroeconomics examines economic relationships on the large scale, such as looking at how the change in an economic variable affects the economy of a nation. An economist examining the impact of a plant closing on the buying behavior of employees’ households would be doing a microeconomic study; a thesis on the effect of plant closings on the unemployment rate of a state or country would be a macroeconomic study.
Brief history of economics
Obviously, economics has been around since the beginning of civilization, or since humans wanted something and had to choose from limited resources. Both Plato and Aristotle were students of economics, although to the ancient Greeks economics pertained to the management of the household. The Greek philosophers supported the notion of an exchange economy as a way for humans to build up their property of material possessions.
The genesis of modern economic thought paralleled the growth of trade during the Middle Ages. Monarchs, attempting to diminish the power of the nobility, extended trade privileges to towns. Guilds, the forerunners of today’s trade unions, developed as people became free to pursue livelihoods other than farming. As towns and guilds competed for business with other towns and guilds, the regulation of trade became an issue. Therefore, most early economic thinking revolved around issues relating to money, interest, revenues, and taxation. Slowly, intellectuals realized that financial concerns were related to other problems, such as population and natural resources. Early economic writings tended to be very moralistic and persuasive in tone because their authors were generally spokespeople for a guild, a church, a town, or a class with a cause to promote.
In the seventeenth and eighteenth centuries, two powerful schools of thought developed in Europe. In Great Britain, the mercantilist school grew in favor. Mercantilists, reacting to the growth of nationalism, advocated active government influence on the balance of trade and payments. They encouraged the export of goods in exchange for full employment and rapid economic growth. In France, a competing school developed that championed a “physiocratic” system. Followers of the physiocratic school were called “economistes” and they advocated a laissez-faire, or “natural,” economic system in which land, and not trade, would be the major source of wealth.
Adam Smith’s publication of The Wealth of Nations in 1776 1 established the classical school of economics that would flourish for more than 100 years. Heavily influenced by the physiocrats and their laissez-faire philosophy, Smith established the doctrine of free enterprise and attacked the mercantilists. Because he wrote about the economic aspects of particular political decisions, Smith established the school of political economy—the early name for contemporary economics. Other prominent political economists were David Ricardo, John Stuart Mill, Jean Baptiste Say, and Thomas Malthus. These classical economists were convinced that production, income, and consumption were based on economic laws, lending credence to the notion that economics was an empirical science.
A neoclassical school developed in the late nineteenth century. Led by Alfred Marshall, it promoted the concept of demand as integral to economic relationships. An excellent mathematician, Marshall was influential in establishing the use of mathematical formulas to explain economic theories.
This growing fascination with economics in Europe did not immediately translate into comparable activity in the newly formed United States. Although Adam Smith’s theories of free enterprise and laissez-faire would seem attractive to a citizenry recovering from a revolution, his ideas were not widely discussed in academic circles. American higher education was still heavily influenced by religious groups and clerics, who were suspicious of Smith’s ideas on religious doctrine and were not anxious to change the status quo.
The United States was in its honeymoon period, and the British influence in economics was found objectionable. British economists seemed to have a disdain for the service sectors (of which U.S. clerics and educators were a part), and they were too interested in the promotion of free trade among countries. America preferred to suppress foreign competition so that it could develop its domestic industries. Economics had to be adapted to U.S. audiences and philosophies. Not until the turn of the twentieth century was economics firmly established as an academic discipline, although the courses were usually taught under the auspices of political science. Economists were still not secure in teaching positions in higher education; this contributed to their leading the fight for academic freedom and the establishment of tenure in U.S. universities.
The Industrial Revolution radically changed society. Suddenly there were new economic concerns, such as the growth of railroads, high government expenditures, the influence of powerful unions, and the dire social conditions of many cities. At the height of the Revolution, a new school called “institutional economics” developed. This school championed the study of institutions—corporations, unions, interest groups—and their thirst for power and property. Led by Thorstein Veblen, more a social satirist than an economist, the institutional school for the first time examined the social role played by economic institutions.
The devastation of the Great Depression, which began in October 1929, emphasized the shortcomings of economic theory: It was inadequate for dealing with the real problems of employment and income. John Maynard Keynes, perhaps the greatest economist of the twentieth century, ushered in the “Keynesian Revolution” with his publication of The General Theory of Employment, Interest and Money. 2 This seminal work advanced the macroeconomic approach to economic theory: It suggested that a government could establish policies leading to full employment and stable prices. Keynes advocated better government use of fiscal and monetary policy, and his policies are still promoted and widely discussed today, although not with the same fervour that they once were.
Economics has undergone tremendous growth since World War II. An understanding of basic economics is now integral to nearly every academic discipline, and the employment of economists in business, industry, and government is at an all-time high. Economics has become quite specialized and is now characterized by many subfields (e.g., consumer economics, health economics, behavioral economics, environmental economics).
Two things distinguish modern economics. First, economics has become a mathematically based discipline. Research is approached empirically, theories are expressed mathematically, and economists are finding that a grounding in statistical and mathematical techniques has become essential for almost any study of economics. The proliferation of computers, now accessible to most researchers, has enabled the processing of large datasets to prove and disprove economic hypotheses. The application of statistics to economics is called econometrics, and it constitutes the most rapidly growing field of economics. Despite an increase in the number of dissenting voices who believe the field should focus less on the “rational man” and mathematics, no viable alternative approach has risen to replace the status quo. An increase in dissent, however, may account for some of the increase in specialized subfields, including feminist, institutional, and post-Keynesian economics.
Second, we have moved into what is called the global economy, which has tremendous implications for economic research and policy decisions. The consequences of the Great Depression in the 1930s and World War II in the 1940s dramatically demonstrated that economic problems have worldwide impact. Nations no longer operate as autonomous economic institutions but are linked by a strong bond of interdependence. Recognition of this is demonstrated by international collaborations, such as the economic summits of world leaders, by the amount of economic research generated by international agencies, and by the growing exchange of scholars at international conferences. Other manifestations are the expansion of development economics, which pertains to the study of economic growth of low-income nations, and the growing interest in the application of economics to the information revolution. This combination of information and high technology is revolutionizing how we function and interrelate with each other. Economics continues to play a pivotal role in addressing many of the questions and concerns raised by the networked information revolution.
Is economics a social science?
Economists now proceed in their research efforts by using the scientific method. They test theories by relating them to empirically observable data. Because economists cannot duplicate their data in a laboratory, they must use the empirical methods of social scientists, not scientists. Like any other social science, economics is subject to the vagaries of human nature; therefore, its theories cannot be totally reliable and accurate, as the following story illustrates.
In the spring of 1973, the U.S. consumer was shocked by a rapid escalation in meat prices. Government economists calculated that the price of meat would drop by the end of the year, as high prices would diminish the demand for meat and ranchers would loosen up supplies. Based on its research, the government established special policies to bring control to meat prices. However, the economic experts and their carefully calculated theories were unable to predict the behavior of U.S. homemakers. Angered by high prices, the homemakers demonstrated their power by quickly organizing a massive national boycott of meat, causing an immediate decrease in meat prices.
Economics cannot exist as an isolated science, because the understanding of many economic problems is related to an understanding of our social and political system. For example, a study of women in the labor force would not be complete without knowledge of the changing social mores that supported the moves of mothers and married women in the workforce. Like other social sciences, economics has policy implications. Desirable economic policy decisions must consist of both scientific economic analysis and socially ethical value judgments.
Nobel Laureate Robert Solow of the Massachusetts Institute of Technology wrote, “Modern economics tries hard not to be a social science, but it can’t help itself. Social institutions and relationships help shape the production and distribution of wealth. The power of wealth is sometimes reflected in social institutions.” 3 He would find a supporter in Douglass North, winner of the 1993 Nobel Prize in Economics, who believes that traditional economics focuses too much on mathematics and not enough on human behavior. He finds that the beliefs a society has in common are not analyzed enough in traditional economics, and that the irrationality of people’s behavior contributes to the success or failure of economics. 4
The literature of economics
The literature of economics has evolved as the discipline has grown in breadth and complexity. Early economic works were either pamphlets that protested or advocated a cause or, beginning in the eighteenth century, full-length studies of economic theories. Economists have drawn from monograph literature for centuries: When Adam Smith wrote The Wealth of The Nations in 1776, he cited nearly 100 authors. Early economists seriously studied existing literature to make sure that their “original” theories had not been expounded earlier. They borrowed heavily from the business world, using materials such as journals of mining and banking, annual reports of railroads, and the histories of industries.
Early theorists such as Smith, Marshall, and Marx became prominent through their monographs. Their works generated a flood of secondary works that questioned, interpreted, and modified their ideas. Even today, monographs continue to be published that discuss the theories of these economists.
As the discipline grew more scientific, the literature of economics changed. Professional economics associations, such as the Royal Economics Society (1890), were organized, and founded journals. These journals grew in importance as timely channels of economics communications became necessary. The first economics journal was the Quarterly Journal of Economics, founded by Harvard University in 1886. Soon professional journals supplanted monographs as the most popular research tools for the burgeoning number of economic faculties, researchers, and students.
As economists began to explore econometrics and built theories that required analysis of data, access to statistics became critical. Government publications, which expanded rapidly in the twentieth century, now supply much of the statistical data necessary for manipulation. International organizations, especially those affiliated with the United Nations, also provide economic data and sponsor specialized research. The advent of computerization meant that these statistical data could be easily processed and disseminated.
The urgency to publish research before it becomes obsolete has led to the development of another form of literature, the working paper or “gray” literature. Working papers are semipublished papers or preprints, in which they are not yet available through official channels such as journals or books. Instead, they are inexpensively produced and distributed by the author, a department, or an organization, such as the National Bureau of Economic Research. Many organizations now provide access to the full text of their working papers via the Internet. In addition, several resources have been developed that allow scholars to search the content of the working papers made available by many of these organizations at once. The dissemination of working papers, particularly in electronic form, overcomes the problem of publishing lags so common with journals in the social sciences. Another advantage of working papers is that they often elicit informal feedback for their authors. Those papers with special merit may eventually find their way into print, but by that time the information will have already been received by the researchers who need it.
As economics has expanded in size and influence, a tremendous body of literature has grown correspondingly. Economics researchers must wade through this labyrinth of material and statistics. Trends in recent economic literature reveal both an increasing global emphasis and the interdisciplinary nature of economics. Economics is viewed as being integral to many of the sweeping concerns of the new millennium, such as environmentalism, internationalism, and the growth of the networked information society. Each new subfield established has necessitated the development of new journals and other forms of publication. This means that not only must economists be familiar with the literature of their own speciality, they also must stay abreast of techniques and theories being developed in other specialities that could be of value to them.
The American Economic Association’s subject classification scheme, which is used to organize economics literature, is continuously reviewed and modified to reflect these trends. New classifications recently added include information and Internet services, trade and environment, alternative energy sources, technological change, choices and consequences, and economics of gender.
Following is a selective and, of necessity, subjective list of economics reference works that could form the core of a reference collection. Because many of these sources are scholarly or heavily statistical in nature, they would be most appropriate for an academic library reference collection. They are representative of the types and variety of reference sources that today’s economists use to satisfy their information needs.