This is a series of conversation between two Economists, Akhilesh Verma and myself, Garima Dhir as we try to unravel and simplify various concepts of economics. Before we get into the specific concepts of Economics, we would want to start this series by discussing the Genesis of Economics – that is, What is economics? How did the field of Economics come into being? How was money born? And what is the use of this field?
Garima Dhir: First and foremost, Akhilesh please tell our readers what is the meaning of Economics?
Akhilesh Verma: In simple terms, Economics is a broad field that studies the inter-relationship between various components of production and consumption of goods and services. These components not only pertain to factors that determine the price of commodities but also include factors governing the money market, behaviour of consumers, political perspectives, export and import of goods, taxation – to name just a few! This might sound a bit much now, but during the course of this series, we would explore and explain each of these components in more detail.
Garima Dhir: Thousands of years back, man was a very primitive being, barely able to light a fire, how did the economy look like then?
Akhilesh Verma: Let’s fast forward a bit from the fire making fest to sometime before the 13th Century. At that time, there was no economy and no need for economics as there was no formal market. You might be amused to know that profit making at that time was considered a sin! Undertaking an activity just to be able to gain a monetary benefit or profit is a very new concept, only 300 years old. Earlier, because things were guided by tradition or the monarchy, “work” was an end in itself and not means to an end that led to profits. In this set-up, you would find various professionals like astronomers, astrologers, farmers, doctors, architects, but not Economists!
Garima Dhir: You mentioned that there were no economists as there was no formal market, but when humans exchanged say 3 apples for 2 coconuts, wouldn’t that be counted as the existence of markets?
Akhilesh Verma: You are right, markets in one form or the other have always existed; even when our ancestors exchanged, like you said, 3 apples for 2 coconuts. However, this was not a “formal market”. These exchanges were based primarily based on accumulation of goods that were available in nature and was not on their production. The economy came into being only when humans started producing or manufacturing goods.
At this point, it is important to note here that economy is different from market and the two should not be confused. Economy is a much broader concept than market and goes beyond the simple act of exchanging accumulated goods and comprises of production of goods and services.
Garima Dhir: Could you explain this in more detail?
Akhilesh Verma: To understand how the economy came into being, let me go back a bit in time.
Earlier, selling family land was considered a blasphemy. Similarly, there was no organized market for hiring labour – imagine no form of Naukri.com or LinkedIn. But slowly three things, that is, land, labour and capital started gaining importance in the monetary sense. A market slowly erupted for these three and they began to be formally bought and sold. And before you ask me how this market erupted, let me tell you this story super quickly. Gradually the society began to move away from the feudal set-up, wherein, masters would take a large percentage of harvest – by force – from the slaves. Now profit and the profit making community, that is the merchants, were no longer regarded as sinners. The need for production and exchange was recognized. While the feudal system was based primarily on owning land and undertaking agricultural activities, mercantilism revolved around commercial activities. The shift from feudalism to mercantilism was further supported by technological innovations like the steam engine..
In short, began the commercialization or monetization of Land, Labour and Capital, which gave rise to a “market economy”.
Garima Dhir: Can you tell us a bit about what else changed in the markets from our ancestor’s time to the time we are living in?
Akhilesh Verma: I am glad you asked this question. The answer is that markets have drastically changed over centuries mainly as a result of two concepts – how we value things and the currency we have.
In a society with simple markets, like in the older days, only a few commodities, that were essential for the basic needs of people, were directly exchanged while other things were not exchanged at all for any price. In today’s market economy, however, most of the products are exchanged for a price, even those which might not have functional benefits. We can understand this with the help of a simple example – watching birds in the nearby woodlands was probably not for sale in the earlier days and was a purely joyous activity with no price. Whereas, in today’s market economy, there are bird watching tours arranged by travel agents or even hotel rooms with a jungle view are priced at a certain rate for “experiencing” the joy of spotting birds. Similarly, Castles would never have been sold despite their exorbitant price, but they are priced now to convert them into heritage hotels, thus making them a part of a market economy.
So you see, what has happened is that by putting a value or a market price to many such intangible experiences, we have transformed the way goods are priced – moving from their non-monetary experiential value to their exchange value. This shift became the fundamental block for emergence of the market economy.
Garima Dhir: I’m excited to continue to this discussion further! Readers, check-out this space for Genesis of Economics – Part 2
Fun Fact! The word economy came from the Greek word “Oikonomia” which means “laws of running a household”. The concept started from understanding the issues of household, but we know that an actual economy might be slightly more complicated to run than a household.
‘Talking to My Daughter About the Economy: A Brief History of Capitalism’, Yanis Varoufakis, 2017
‘The Worldly Philosophers: The Lives, Times And Ideas Of The Great Economic Thinkers’, Robert Heilbroner, 1999