How Has The Evolution Of Economics Impacted The World? - Discover The Past, Present and Future

Economics is the science that studies how societies produce goods and services and how they consume them. Economic theory has influenced global finance at many important junctures throughout history and is an integral factor in our everyday lives. 

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However, the assumptions that guide the study of economics have changed dramatically throughout history. Here is a brief look at the history of economic thought.

Who Invented Economics First?

No one person invented economics. Instead, many notable thinkers and societies throughout history have contributed to the field of economics.

When Did The Economic History Start?

Modern economics is attributed to Adam Smith, who published The Wealth of Nations in 1776. However, the practices and ideas that led to Smith's paper were developed over centuries of discussions and ideas around the globe.

The Past

The six decades after the end of World War II, until the crisis of 2008, were a golden age in terms of the narrow measure of economic development, real per capita income (or gross domestic product, GDP). 

This multiplied by a factor of four for the world as a whole between 1950 and 2008. For comparison, before this period it took a thousand years for world per capita GDP to multiply by a factor of fifteen. 

Between the years 1000 and 1978, China’s income per capita GDP increased by a factor of two; but it multiplied six-fold in the next thirty years.

India’s per capita income increased five-fold since its independence in 1947, having increased a mere twenty per cent in the previous millennium. Of course, the crisis of 2008 caused a major dent in the long-term trend, but it was just that. 

Even allowing for the sharp decreases in output as the result of the crisis, post-war economic growth is spectacular compared to what was achieved in the previous thousand years.

The six decades after the end of World War II, until the crisis of 2008, were a golden age in terms of the narrow measure of economic development, and real per capita income. This multiplied by a factor of four for the world as a whole between 1950 and 2008.

But what about the distribution of this income, and in particular the incomes of the poorest? Did they share in the average increase at all? Here the data do not stretch back as far as for average income. In fact, we only have reasonably credible information going back three decades. 

But, according to World Bank calculations, using their global poverty line of $1.90 (in purchasing power parity) per person per day, the fraction of the world population in poverty in 2013 was almost a quarter of what it was in 1981—forty-two per cent compared to eleven per cent. 

The large countries of the world—China, India, but also Vietnam, Bangladesh, and so on—have contributed to this unprecedented global poverty decline. 

Indeed, China’s performance in reducing poverty, with hundreds of millions being lifted above the poverty line in three decades, has been called the most spectacular poverty reduction in all of human history.

The Present

The present economic development discourse is, of course, shaped by the trends of the distant and recent past. An interesting and important feature of the current landscape is the shift in the global geography of poverty. 

Using standard official definitions, forty years ago ninety percent of the world’s poor lived in low-income countries. Today, three-quarters of the world’s poor live in middle-income countries (Kanpur and Sumner, 2012). 

The fast growth of some large countries, accompanied by rising inequality in these countries, means that the average income increases have not been reflected in poverty reduction to the same extent.

So, although these countries have now crossed the middle-income category boundary, which depends on average income, they still have large absolute numbers of poor people. The poor in middle-income countries vie with the poor in poor countries for global concern and attention.

The Future

The past and present of economic development set the platform for the long-term future. Environmental degradation and climate change will surely worsen development prospects and ratchet up conflict and environmental stress-related migration. 

The issues here have been well debated in the literature (see, for example, Kanbur and Shue, 2018). And the actions needed are relatively clear—the question is whether there is the political will to carry them out.

Final Thoughts

Looking back over the past seven decades since the end of World War II, economic development presents us with a string of contradictions. There have been unprecedented rises in per capita income, with many large developing countries crossing the threshold from low-income to middle-income status. 

These income increases have been accompanied by equally unprecedented improvements in income poverty and in education and health indicators.

Written by – Dhruvi Solanki

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