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Economics

Economics Origins

The practice of economics is as old as when a prehistoric human first approached another human to trade one kind of food for another, this was known as barter. But as a prerequisite to having something to barter, one had to have possession of it. With prehistoric humans, finding something that existed in nature that others may also want, gave it value. That it came from land or water that the human’s inhabited apparently led early humans to conclude that it was theirs’. For humans who created something, a tool, as an example, it was the product of their ingenuity and thus they concluded it was theirs. These are the two broad categories of resources and goods that humans have the potential to allocate among the human race. Based on this fundamental historical, observation, the concept of private property (that individuals may own property – goods and resources) came into being. Economics evolved as the human species developed new forms of organizing itself, because the driving force for organizing rested in the need to survive and the communal bonding of people represented a logical approach to accomplishing the everyday tasks through various divisions of labor.

Human Communities

Government evolved starting with hunter-gatherer bands of humans and were believed to be generally kinship-oriented and egalitarian, meaning the group would have a high level of equality among its members. This would have led to sharing of resources. The governance of such preliterate (this is the preferred term to "primitive") communities likely relied on a process not unlike direct democracy where small bands of people would have made decisions around campfires based on consensus and a shared wisdom passed on from elders who could draw on personal experiences. Within these communities, individuals would rise to leadership of the group by consent of the members based on the many of the same attributes we look for in leaders today. These Tribal societies introduced chieftains, the predecessor of the monarchies, in response to the growing complexity of governance. Ordaining children of monarchs as successors insured stability and some knowledge of governance. The originally kinship-oriented, egalitarian societies evolved into stratified societies that were less egalitarian and that valued wealth or status more than kinship. Civilizations, with complex social hierarchies organized institutional governments based on a geographic region. To insure that their common values were sustained and adopted, they defined desirable and undesirable behaviors by codifying laws to reflect their belief systems. Such codifications communicated the expected behavior and the desirable virtues to members of the group, including how goods and resources were to be allocated. Strategies (treaties, war, fortifications, standing armies, etc.) were used to buttress the benefits of the society from non-members who threatened its stability or taking of its goods and resources. By about 5000 BC, we have evidence of well-formed governments and economic systems that included money, patterns of inheritance, etc.

The Essence of Economics

The field of economics in Western Civilizations first appears as an ethical issue in Greek political philosophy with Socrates and Plato. The question assumed the concept of private property, but altered the question from one of who owned it to one of “What is a just price?” This is related to another key question in philosophy, “What is the purpose of life? Is it wealth? Is it happiness? Will one lead to the other?” These are character and citizenship education questions and they cannot be divorced from economic considerations because basic needs must be met to develop the full potential of humans.

Private property is an accepted concept in Western Civilization since antiquity and one most American’s take for granted. With that as a given for either individual humans or countries, the idea has evolved more to a questions of ethics, the law and global resource allocation. There were two significant challenges in Western Civilization to the concept of private property; both based on the question of ethics and on the alternative of communal property.  This may surprise many readers, but Christianity up until the 5th century was viewed by many as communal, economic alternative to the private property concept due to the teaching of Jesus of Nazareth. It was St. Augustine and St Thomas Aquinas who articulated a case for private property as legitimate within the teachings of Christianity. The second challenge was Marxism which defined all property as belonging to the state and to be distributed by the state based on the communal needs of the populace.

Scarcity & Distribution of Resources

Because we live communally on a planet with finite resources, the two most fundamental issues of economics today are scarcity and distribution of resources. We use the term scarcity to refer to resources that are limited and distribution of resources as the process by which cultures decide how to develop and allocate the scarce resources. Or if put another way, if all things were abundant and available to everyone, everywhere on the planet, there would be little need for economic decisions as to who gets what. It could be argued that crime and poverty would not exist if resources were unlimited and readily available. The United States has many types of resources in abundance compared to other nations. Bangladesh has far fewer resources and is one of the poorest countries on the planet. The tension produced by limited resources combined with worldwide population growth, nations and their geographic boundaries defining resources, and a global economy has led to both conflict and strategies to reconcile differential access to finite natural resources. Our growing understanding of human potential and the effect of wealth on health and education returns civilized people to the original question: “What is fair?”

Classic Theories of Economics

Every nation has an economic system. Some economic systems, such as bartering, are simple; others, like the U.S. system or the global economy, are highly complex. Historically, wars, trade, and treaties determined how resources would be allocated. Much of economics since Adam Smith’s (1723–1790) landmark book, An Inquiry into the Nature and Causes of the Wealth of Nations, (published in 1776) has focused on a debate about the role of government in economic affairs and the best or optimal economic approach to providing adequate opportunity for human potential to be realized and ensuring sufficient redistribution of wealth to minimize class struggles. The movements from eighteenth-century mercantilism to laissez-faire policies and from John Stuart Mill’s proposals for worker education and taxation to Karl Marx’s call for an international workers’ revolution are examples of approaches to scarcity, redistribution of wealth, and the role of government. What is the appropriate role of government in regulation, ownership, and distribution of resources? The competing economic systems of socialism and capitalism are based on differing beliefs about how to increase and promote human initiative, develop natural resources, and allocate products and scarce resources. In both systems, government can play a greater or lesser role in planning and controlling national economies.

In General Theory of Employment, Interest, and Money (1936), John Maynard Keynes (1883–1946) was the first economist to explain the complex cycles of recession, inflation, and unemployment. Keynes proposed an important but limited role for government in the world economy. The American free enterprise system is a relatively unplanned and unregulated capitalist system that promotes private ownership of property and production based on consumer demand. By comparison, the typical socialist system has traditionally had a centrally planned economy with few or no private property rights, and the government determined what, how much, and when products would be produced. The American economy is not a pure free enterprise system; it promotes redistribution of wealth through direct government policy (taxes, free public education), tax exemption of charitable organizations (churches and nonprofits), and individual altruism (tax deductions for gifts to charity). China and Russia are both moving from unsuccessful highly planned socialist economies to a more capitalist system.

 

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