Economy

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An economy consists of the economic system of a country or other area, the labor, capital and land resources, and the economic agents that socially participate in the production, exchange, distribution, and consumption of goods and services of that area. A given economy is the end result of a process that involves its technological evolution, history and social organization, as well as its geography, natural resource endowment, and ecology, as main factors. These factors give context, content, and set the conditions and parameters in which an economy functions. Today the range of fields of study examining the economy include social sciences such as economics, sociology (economic sociology), history (economic history), anthropology (economic anthropology), and geography (economic geography). Practical fields directly related to the human activities involving production, distribution, exchange, and consumption of goods and services as a whole, range from engineering to management and business administration to applied science to finance. All kind of professions, occupations, economic agents or economic activities, contribute to the economy. Consumption, saving, and investment are core variable components in the economy and determine market equilibrium. There are three main sectors of economic activity: primary, secondary, and tertiary.

Etymology
The English words "economy" and "economics" can be traced back to the Greek words "one who manages a household" (derived from "house", and "distribute (especially, manage)"), "household management", and "of a household or family". The first recorded sense of the word

"economy", found in a work possibly composed in 1440, is "the management of economic affairs", in this case, of a monastery. Economy is later recorded in more general senses including "thrift" and "administration". The most frequently used current sense, "the economic system of a country or an area", seems not to have developed until the 19th or 20th century

History
Ancient times
As long as someone has been making and distributing goods or services, there has been some sort of economy; economies grew larger as societies grew and became more complex. Sumer developed a large scale economy based on commodity money, while the Babylonians and their neighboring city states later developed the earliest system of economics as we think of, in terms of rules/laws on debt, legal contracts and law codes relating to business practices, and private property The Babylonians and their city state neighbors developed forms of economics comparable to currently used civil society (law) concepts. They developed the first known codified legal and administrative systems, complete with courts, jails, and government records. Several centuries after the invention of cuneiform, the use of writing expanded beyond debt/payment certificates and inventory lists to be applied for the first time, about 2600 BC, to messages and mail delivery, history, legend, mathematics, astronomical records and other pursuits. Ways to divide private property, when it is contended... amounts of interest on debt... rules as to property and monetary compensation concerning property damage or physical damage to a person... fines for 'wrong doing'... and compensation in money for various infractions of formalized law were standardized for the first time in history.

Greek drachm of Aegina. Obverse: Land turtle / Reverse: (INA) and dolphin. The oldest turtle coin dates 700 BC The ancient economy was mainly based on subsistence farming. The Shekel referred to an ancient unit of weight and currency. The first usage of the term came from Mesopotamia circa 3000 BC. and referred to a specific mass of barley which related other values in a metric such as silver, bronze, copper etc. A barley/shekel was originally both a unit of currency and a unit of weight... just as the British Pound was originally a unit denominating a one pound mass of silver. For most people the exchange of goods occurred through social relationships. There were also traders who bartered in the marketplaces. In Ancient Greece, where the present English word 'economy' originated, many people were bond slaves of the freeholders. Economic discussion was driven by scarcity. Aristotle (384-322 B.C.) was the first to differentiate between a use value and an exchange value of goods. (Politics, Book I.) The exchange ratio he defined was not only the expression of the value of goods but of the relations between the people involved in trade. For most of the time in history economy therefore stood in opposition to institutions with fixed exchange ratios as reign, state, religion, culture, and tradition.[citation needed]

Middle ages
In Medieval times, what we now call economy was not far from the subsistence level. Most exchange occurred within social groups. On top of this, the great conquerors raised venture capital (from ventura, ital.; risk) to finance their captures. The capital should be refunded by the goods they would bring up in the New World. Merchants such as Jakob Fugger (14591525) and Giovanni di Bicci de' Medici (13601428) founded the first banks. The discoveries of Marco Polo (12541324), Christopher Columbus (14511506) and Vasco da Gama (14691524) led to a first global

economy. The first enterprises were trading establishments. In 1513 the first stock exchange was founded in Antwerpen. Economy at the time meant primarily trade

Early modern times

The European captures became branches of the European states, the so-called colonies. The rising nation-states Spain, Portugal, France, Great Britain and the Netherlands tried to control the trade through custom duties and taxes in order to protect their national economy. The so-called mercantilism (from mercator, lat.: merchant) was a first approach to intermediate between private wealth and public interest. The secularization in Europe allowed states to use the immense property of the church for the development of towns. The influence of the nobles decreased. The first Secretaries of State for economy started their work. Bankers like Amschel Mayer Rothschild (17731855) started to finance national projects such as wars and infrastructure. Economy from then on meant national economy as a topic for the economic activities of the citizens of a state.

The industrial revolution

The first economist in the true meaning of the word was the Scotsman Adam Smith (17231790). He defined the elements of a national economy: products are offered at a natural price generated by the use of competition - supply and demand - and the division of labour. He maintained that the basic motive for free trade is human self interest. The so-called self interest hypothesis became the anthropological basis for economics. Thomas Malthus (17661834) transferred the idea of supply and demand to the problem of overpopulation. The United States of America became the place where millions of expatriates from all European countries were searching for free economic evolvement. The Industrial Revolution was a period from the 18th to the 19th century where major changes in agriculture, manufacturing, mining, and transport had a profound effect on the socioeconomic and cultural conditions starting in the United Kingdom, then

subsequently spreading throughout Europe, North America, and eventually the world. The onset of the Industrial Revolution marked a major turning point in human history; almost every aspect of daily life was eventually influenced in some way. In Europe wild capitalism started to replace the system of mercantilism (today: protectionism) and led to economic growth. The period today is called industrial revolution because the system of Production, production and division of labour enabled the mass production of goods.

Communism and its view of capitalism

Marx and Engels believed that capitalism is characterized by the division of labor between worker and capitalist, in which the means of production are separated from the direct producers and are instead owned by a parasitical capitalist class. Under capitalism, the working class produces surplus value, of which only a small percentage is returned to workers in the form of wages to provide for their bare subsistence. The rest of the surplus value is kept as profit, and is reinvested into the commodity cycle by the capitalist. The competitive forces of the market will drive capital to constantly accumulate "for the sake of more accumulation", resulting in monopolies, economic crisis and imperialism. Marx and Engels viewed capitalism as a historically-specific mode of production, as with feudalism and hunter-gatherer societies, embedded with its own internal contradictions. Capitalism is the first mode of production in which the direct producers have no control over their conditions of labour or the means of production. The first centrally planned economy was established after the Russian Revolution of 1917, led by the Bolshevik Party, in which production (and social life) was organized around workers' councils called soviets. Similar councils of recallable worker delegates have existed in subsequent revolutions and revolutionary situations throughout the 20th Century, including the 1936 Spanish Revolution, the 1974 Carnation Revolution in Portugal, the 1979 Iranian Revolution and the 1980 Solidarity uprising in Poland.

After World War II

After the chaos of two World Wars and the devastating Great Depression, policymakers searched for new ways of controlling the course of the economy. This was explored and discussed by Friedrich August von Hayek (18991992) and Milton Friedman (19122006) who pleaded for a global free trade and are supposed to be the fathers of the so called neoliberalism. However, the prevailing view was that held by John Maynard Keynes (18831946), who argued for a stronger control of the markets by the state. The theory that the state can alleviate economic problems and instigate economic growth through state manipulation of aggregate demand is called Keynesianism in his honor. In the late 1950s the economic growth in America and Europeoften called Wirtschaftswunder (ger: economic miracle) brought up a new form of economy: mass consumption economy. In 1958 John Kenneth Galbraith (19082006) was the first to speak of an affluent society. In most of the countries the economic system is called a social market economy.

Economic sectors
Main article: Economic sectors The economy includes several sectors (also called industries), that evolved in successive phases.

The ancient economy was mainly based on subsistence farming. The industrial revolution lessened the role of subsistence farming, converting it to more extensive and mono-cultural forms of agriculture in the last three centuries. The economic growth took place mostly in mining, construction and manufacturing industries.

In the economies of modern consumer societies there is a growing part played by services, finance, and technologythe (knowledge economy).

In modern economies, there are four main sectors of economic activity:[citation needed]

Primary sector of the economy: Involves the extraction and production of raw materials, such as corn, coal, wood and iron. (A coal miner and a fisherman would be workers in the primary sector.)

Secondary sector of the economy: Involves the transformation of raw or intermediate materials into goods e.g. manufacturing steel into cars, or textiles into clothing. (A builder and a dressmaker would be workers in the secondary sector.)

Tertiary sector of the economy: Involves the provision of services to consumers and businesses, such as baby-sitting, cinema and banking. (A shopkeeper and an accountant would be workers in the tertiary sector.)

Quaternary sector of the economy: Involves the research and development needed to produce products from natural resources. (A logging company might research ways to use partially burnt wood to be processed so that the undamaged portions of it can be made into pulp for paper.) Note that education is sometimes included in this sector.

Other sectors include the

Public Sector or state sector Private Sector or privately-run businesses Social sector or Voluntary sector

Economic measures
There are a number of ways to measure economic activity of a nation. These methods of measuring economic activity include:

Consumer spending Exchange Rate Gross domestic product GDP per capita GNP Stock Market

Interest Rate National Debt Rate of Inflation Unemployment Balance of Trade

GDP
The GDP - Gross domestic product of a country is a measure of the size of its economy. The most conventional economic analysis of a country relies heavily on economic indicators like the GDP and GDP per capita. While often useful, it should be noted that GDP only includes economic activity for which money is exchanged.

Informal economy
Main article: Informal economy An informal economy is economic activity that is neither taxed nor monitored by a government, contrasted with a formal economy. The informal economy is thus not included in that government's Gross National Product (GNP). Although the informal economy is often associated with developing countries, all economic systems contain an informal economy in some proportion. Informal economic activity is a dynamic process which includes many aspects of economic and social theory including exchange, regulation, and enforcement. By its nature, it is necessarily difficult to observe, study, define, and measure. No single source readily or authoritatively defines informal economy as a unit of study. The terms "under the table" and "off the books" typically refer to this type of economy. The term black market refers to a specific subset of the informal economy. The term "informal sector" was used in many earlier studies, and has been mostly replaced in more recent studies which use the newer term. Micro economics are focused on an individual person in a given economic society and Macro economics is looking at an economy as a whole. (town, city, region)

Largest economies by GDP

2009 List by the International Monetary Fund Rank Country GDP (millions of USD) World 60,917,477 European Union 16,414,697[5] 1 United States 14,119,050 2 5,068,894 Japan 3 4,984,731 China 4 3,338,675 Germany 5 2,656,378 France 6 United Kingdom 2,178,856 7 2,118,264 Italy 8 1,574,039 Brazil 9 1,467,889 Spain 10 Canada 1,336,427

Economic System of Islam

Islam is an entire way of life, and Allah's Guidance extends into all areas of our lives. Islam has given detailed regulations for our economic life, which is balanced and fair.

Muslims are to recognize that wealth, earnings, and material goods are the property of God, and that we are merely His trustees. The principles of Islam aim at establishing a just society wherein everyone will behave responsibly and honestly. The fundamental principles of the Islamic economic system are as follows:

Muslims are not to deal in interest. "Those who devour usury will not

stand....Allah has permitted trade and forbidden usury.... Allah will deprive usury of all blessing, but will give increase for deeds of charity..." (Qur'an 2:275-6). "O you who believe! Devour not usury, doubled and multiplied. But fear Allah, that you may really prosper" (Qur'an 3:130) This prohibition is for all interest-based transactions, whether giving or receiving, whether dealing with Muslims or nonMuslims. It is reported that the Prophet Muhammad (peace be upon him) cursed those who pay interest, those who receive it, those who write a contract based on it, and those who witness such a contract.

It is forbidden to gain property or wealth by fraud, deceit, theft, or other

falsehoods. "...Give just measure and weight, and do not withhold from people the things that are their due. And do not do mischief on the earth after it has been set in order. That will be best for you, if you have faith" (Qur'an 7:85).

It is particularly hateful for a guardian to take from an orphan's

property. "To orphans restore their property (when they reach their age). Do not substitute your worthless things for their good ones, and do not devour their property by mixing it up with your own. For this is indeed a great sin" (Qur'an 4:2).

Forbidden are earnings from gambling, lotteries, and the production,

sale, and distribution of alcohol. "O you who believe! Intoxicants and gambling, sacrificing to stones, and divination by arrows are an abomination of Satan's handiwork. Eschew such abomination, that you may prosper" (Qur'an 5:90).

It is unlawful to hoard food and other basic necessities. Everyone should

take what they need and no more. "And let those who covetously withhold of the gifts which Allah has given them of His Grace, think that it is good for them. No, it will be the worse for them. Soon it will tied to their necks like a twisted collar, on the Day of Judgment. To Allah belongs the heritage of the heavens and the earth, and Allah is well-acquainted with all that you do" (Qur'an 3:180).

A Muslim should be responsible in spending money. Extravagance and

waste are strongly discouraged. "[The Servants of Allah are] Those who, when they spend, are not extravagant and not stingy, but hold a just balance between those extremes" (Qur'an 25:67). "O Children of Adam! Wear your beautiful apparel at every time and place of prayer. Eat and drink, but waste not by excess, for Allah loves not the wasters" (Qur'an 7:31).

Muslims must pay Zakat (alms). "And they have been commanded no more

than this: to worship Allah, offering Him sincere devotion, being true in faith. To establish regular prayer, and to give zakat. And that is the religion right and straight" (Qur'an 98:5). Every Muslim who owns wealth, more than a certain amount to meet his or her needs, must pay a fixed rate of Zakat to those in need. Zakat is a means of narrowing the gap between the rich and the poor, and to make sure that everyone's needs are met.

Muslims are encouraged to give constantly in charity. "Your riches and

your children may be but a trial. Whereas Allah, with Him is the highest reward. So fear Allah as much as you can, listen and obey, and spend in charity for the benefit of your own souls. And those saved from the selfishness of their own souls, they are the ones that achieve prosperity" (Qur'an 64:15-16). The Prophet Muhammad once said that "nobody's assets are reduced by charity."