INDIAN ECONOMY

 Mixed Economy In practice, mixed economic system was already there (by late 1930s) once the market economies adopted certain policy changes (borrowing from the non-market economy) to recover out of the Depression. But first country to announce adopting this system was France (in 1944- 45, with the announcement to adopt national planning). The system got further strengthened once the non-market economies started modifying themselves by mid-1980s. It was with few reports of the World Bank that helped world agree on the best model of the economic system— ■ World Bank accepted the need of ‘state intervention’ in the economy (i.e., the market economy) which used to be an ardent advocate of the free market economy. But the time and nature of the intervention cannot be universal . ■ World Bank further concluded that neither of the economic systems (market and nonmarket) are free from flaws and even a novice of economics can agree that the best economic system can be the mixture of the bo...

 Non-Market Economy Rooted (immediately) in the ideas of Karl Marx (1818-83), it had two variants—socialist and communist. While in the socialist model (ex-USSR, 1917-89) state was having ownership control on only natural resources, in the communist model (China, 1949-85) the state used to have ownership control over labour also. It got also known by its other names such as State Economy, Command Economy, Centrally Planned Economy. Basically, this system evolved in ‘reaction’ to the market economy and was based on the following main beliefs— ■ Resources of a country should be used for the wellbeing of all. ■ Resources are best used once they are under the ownership of society/community (Socialism/Communism). Thus, all economic roles will be played by the state only. ■ No property rights given to individuals guided by the belief that it promotes exploitation of the labourers (i.e., proletariat) and helps a small minority (i.e., bourgeoisie) to get richer over time—resulting into inc...

 Market Economy This is considered the first formal economic system emerging out of the traditional economic system. Its origin is traced back to the work (An Inquiry into the Nature and Causes of the Wealth of Nations, 1776) of the Scottish philosopher-economist Adam Smith (1723-90). His main ideas can be summed up, in a simplified way, in the following way— ■ It is the self-interest which motivates individuals/firms to do economic activities out of which society gets goods and services supplied with. It means the products society gets is unintended social benefits of someone’s self-interested actions. Adam Smith called this motivating factor the invisible hand (often called as the ‘animal spirit’). This way the questions like ‘who’ will invest in productive assets and ‘why’ seem get answered. ■ To attain higher prosperity there should be increasing division of labour (specialisation of labour force by breaking down large jobs into small components). Specialisation brings in speed...

  What is an Economic System? Human life depends on uses of certain things (goods and services) some of which, up to a level, are also essential (such as food, water, shelter, cloth, etc.) for survival. How to let people have these things was the first challenge for the humanity . This challenge has two dimensions of it- firstly, these things need to be created (produced) and secondly, they should reach (distributed/supplied to) the needy people. For production one needs to set up productive assets for which money needs to be spent (known as investment). But ‘who’ will invest and ‘why’? In the process of taking on this challenge there evolved different types of economic systems (i.e., different ways of organising an economy).  Economic systems can be categorized into four main types: traditional economies, command economies, mixed economies, and market economies. 1. Traditional economic system The traditional economic system is based on goods, services, and work, all of which...

  WHAT IS AN ECONOMY?

 MICRO AND MACRO ECONOMICS After the Great Depression (during the 1930s) the domain of economics got divided into two broad branches—the micro- and macro-economics. John Maynard Keynes is considered the father of macroeconomics (the branch came into being after the publication of his seminal work, The General Theory of Employment, Interest and Money, in 1936). Simply put, if macroeconomics (macro) is about the forest, microeconomics (micro) is about the trees. While the former deals with the big picture (the forest) the latter deals with the details (the trees) that make up the forest. Micro and macro are the Greek words which mean ‘small’ and ‘big’, respectively. While micro takes a bottoms-up approach to analyse economy, macro takes a top-down approach. Taking an example, while micro tries to understand the choices which consumers make and the income they earn, macro tries to understand the dynamics of inflation and growth. Though, they appear to be different, they are actually i...

 ▷ DEFINING ECONOMICS Economics is the study of scarcity and its implications for the use of resources, production of goods and services, growth of production and welfare over time, and a great variety of other complex issues of vital concern to society. Economics is a social science that examines how people choose among the alternatives available to them. It is social because it involves people and their behavior. It is a science because it uses, as much as possible, a scientific approach in its investigation of choices. What are Economic Activities?  In a very simple way, all activities where money is involved can be called economic activities. Economic activities are carried out by human beings to earn their income and to acquire wealth. For example, a trader, an agriculturist, a manufacturer, a doctor, a teacher, and laborers working in a factory are all examples of economic activities.  However, defining economics has not been as easy as it has been presented here— d...