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Economics is the social science which examines the production, distribution, and consumption of goods and services in an economy. It aims to understand how best to allocate scarce resources in order to satisfy human beings’ unlimited wants. Economic analysis may be applied to various areas such as business, environment, agriculture, energy, water, health, transport, public utilities, labour and human behaviour, among others. The subject can be broadly divided into four main areas:

The econometrics discipline applies mathematics and statistical methods to economic data thereby allowing economic theories to be verified and economic forecasts to be carried out. Econometrics utilises various tools such as probability and frequency distributions, regression analysis and simultaneous equation models to estimate the relationship between two or more variables that are varying in space, time or both. Econometrics can be split into two main types: theoretic and applied. The former concerns the development and examination of econometric tools and methods, while the latter describes the use of econometrics with respect to the development of quantitative economic models.

Microeconomics seeks to analyse the individual players in a market. There are several significant fields of study in microeconomics, such as:

  • partial and general equilibrium, which seek to explain the behaviour of supply, demand and prices in one market and in a whole economy respectively;
  • the theory of the firm (perfect competition; imperfectly competitive market structures like monopolistic competition, monopoly, oligopoly and monopsony and cost structures);
  • the theory of consumer behaviour (ordinal and cardinal utility, welfare, equivalent and compensating variation and );
  • the allocation of limited resources among many alternative uses;
  • opportunity cost analysis and the determination of demand, supply and prices;
  • market failure issues, which occur when markets fail to produce efficient results (asymmetric information, non-competitive markets, principal–agent problems, externalities, and public good provision);
  • regulatory economics;
  • the economics of incentives;
  • economic applications of game theory, which is a branch of applied mathematics considering strategic interactions between agents and is applicable to any circumstance where individual agents are few enough to affect one another;

Today, the dominant microeconomic doctrine is essentially neoclassical in nature and follows on the footsteps of Jevons, Walras, Menger and Marshall who had tried to apply the methods of physics to the study of society.

Given that the methods of physics had been developed for deployment in environments characterised by translational and rotational invariances and given also that following the popularisation of Godel’s theorem, physics itself (and particularly classical mechanics) abandoned the axiomatic method, many critics find fault with neoclassical economics in its present forms. This reaction usually results in either a preference for political economy methods deployed before the neoclassical revolution of the 1880’s or a preference for ad hoc methods that repudiate neoclassical economics methods and offer alternatives to the fallacies they identify. One of the best-developed alternative frameworks in existence today has been developed by Prof. Hyman Minsky and has subsequently been further elaborated on by Prof. Steve Keen of the University of Western Sydney.


Modern macroeconomics was established as a distinct discipline from microeconomics during the Great Depression of 1929, upon the publication of John Maynard Keynes’ book ‘The General Theory of Employment, Interest and Money’, which advocated activist economic policy by the government to increase demand during recessionary periods. In contrast to microeconomics, macroeconomics is the study of the entire economy and this field of study examines the behaviour, main elements and overarching systems of an economy. Such macroeconomic discussions are usually at country level and utilise certain facts from that country’s economic performance such as the gross domestic product, inflation, interest rates, balance of payments, and unemployment. This field of study examines several sub-topics, such as:

  • the factors affecting a country’s stabilisation policies, that is a government’s ability to control its economic growth through monetary and fiscal policies during both booms and recessionary periods;
  • the factors affecting a country’s supply-side economics, dealing with the country’s production rate and how it can control absolute and competitive production advantages against competing countries;
  • international trade and the impact of a country’s imports and exports on its economic growth;
  • the accumulation of capital, technological change and labour force growth affecting the level and growth of national income – these factors are also utilised to explain differences in the output level per capita and growth rate between countries;
  • development economics, which analyses the economic features of development in low-income countries and focuses on structural change, poverty, and economic growth;
  • public finance issues dealing with budgeting the revenues and outlays of public sector entities – such issues as tax incidence, government programs’ cost-benefit analyses, effects on efficiency and the distribution of income of diverse kinds of spending and taxes are addressed; and
  • monetary economics, which provides a framework for analysing money and the effects of monetary systems.


The history of economic thought incorporates many different schools of economic thought. The philosopher Adam Smith, author of ‘The Wealth of Nations’, published in 1776, believed that governments ought to be laissez-faire as the pursuit of an individual’s self-interest would be economically beneficial to society as a whole. He also wrote that the price of goods is the work performed with respect to obtaining such goods. Yet, in his Theory of Moral Sentiments, Smith clearly pointed out a different more humane aspect of society without which it would fall apart. Smith is frequently referred to as the father of classical economics, even though economics dates back at least to the times of Aristotle and even though Smith was referring to the works of the economic pamphleteers who preceded him in his own works. Karl Marx, the economist behind another school of thought known as Marxism, described the capitalist system as exploitative and alienating.

The marginalist revolution saw the rise of neoclassical economics, which sought to make economics more mathematical, and mathematically-oriented, as opposed to qualitative and argumentative. The marginalist revolution sought to apply the principles of classical mechanics, then a very successful field of study, to society. Leon Walras, for instance, created models and theories such as the general equilibrium theory and the auctioneer that acts as a market clearance house, whereas Alfred Marshall introduced concepts such as that of economies of scale and marginal utility to economic thought.

During the Great Depression of the 1930s, John Maynard Keynes advocated stabilisation policies by the government. Such interventionist policies were criticised by the Chicago School of economics, usually embodied in Rose and Milton Firiedman. According to Milton Friedman, laissez-faire policies were more desirable than government intervention. Moreover, he asserted that market economies were stable if the money supply did not significantly expand or contract. Under his hypothesis, therefore, governments should target a neutral monetary policy focusing on long-run economic growth, by gradually expanding the money supply.

In the 1970s, a New Classical (neoclassical) and a New Keynesian (neo-Keynesian) school of thought started emerging. Both theories assume that households and firms have rational expectations. However, the latter school of thought assumes imperfect competition to help explain why prices and wages do not adjust immediately to changes in economic conditions.

The neoclassical school of thought then gave us the Washington consensus in the 1990’s. Following the 2008 crisis, which was unforeseen by the dominant neoclassical school of thought, economics is again at a crossroads in trying to redefine itself. The IRISS and its members have always been on the forefront in trying to push for radical change in economic thought.

The IRISS has always believed that changing a few things on the periphery of economics will not work for long. If changes are to be made for economics to become a progressive social science once again, some hard-core tenets and everything else built on those tenets need to change. Luckily, especially following 2008, there have been many endeavours that have risen to this challenge.

  Additional information about specialised fields in economics may be accessed here, whereas information about the future of economics may be found here.