What is Capitalism?

Economics isn’t just about how money flows, but about how people react to certain events. It affects our daily lives in both obvious and subtle ways.

It determines The opportunity costs we face in deciding what to buy, and because we spend our time to earn money, it affects how we use our time. Inflation, economic growth and employment prospects affect our living standards, so do individual markets like housing market. We may not like paying petrol tax, but if we see it helps to reduce pollution and congestion and the tax revenue is used to subsides public transport, it gives a different perspective. Consumers’ cost of living depends on the prices of many goods and services and the share of each in the household budget. To measure the average consumer’s cost of living, government agencies conduct household surveys to identify a basket of commonly purchased items and track over time the cost of purchasing this basket.

Opportunity Costs is the value of the next-best alternative when a decision is made; it’s what is given up.

Inflation is the rate of increase in prices over a given period of time. Inflation is typically a broad measure, such as the overall increase in prices or the increase in the cost of living in a country. But it can also be more narrowly calculated— for certain goods, such as food, or for services, such as a haircut.

We are constantly faced with choices. It may be a matter of limited time. For example, at the weekend: We could spend 8 hours working in a cafe at the Minimum Wage of €10.50. Or we could spend 8 hours studying for our A-Levels.Alternatively, we could choose to spend 8 hours of leisure (sleeping in, social media e.t.c.) Each choice has an opportunity cost. The opportunity cost of earning 8 times €10.50 = €84, is that we don’t have time to study. This could lead to poorer exam results, which could lead to lower future earning potential.

Macro-economics is the study of how money moves on a large scale. It connects together the countless policies, resources, and technologies that make economic development happen. International Monetary Fund, imf.org, 2023.

In theory, economics could be non-political. An ideal economist should ignore any political bias or prejudice to give neutral, unbiased information and recommendations on how to improve the economy of a country. However, the reality is that they are strongly linked and both influences the other.

Many economic issues are seen through the eyes of political beliefs, and as a result they are inherently political. As a result, there is often economic evidence to support both sides of a political debate about policies for a country’s economy. For example, some people are instinctively more suspicious of government intervention. Therefore, they prefer economic policies which seek to reduce government interference in the economy. On the other hand, economists may have a preference for promoting greater equality in society and be more willing to encourage government intervention to pursue that end.

If you set different economists to report on the desirability of income tax cuts for the rich, their policy proposals are likely to reflect their political preferences.

For much of human history, economies have been virtually stagnant. The roots of global exchange had emerged by the 2nd century BC in the Silk Road, an extensive network of land and sea routes that linked Asia to Europe and remained important until the 15th century. The roots of modern capitalism emerged in Western Europe after 1500, particularly in the Dutch Republic and England. The accumulation of capital and the making of profit grew increasingly important, eventually becoming the main focus of the economy. Accompanying these changes was the growth of international trade, financial institutions, new economic theories and technologies that increased productivity. However, for the next three centuries, economic growth remained slow.

The Industrial Revolution was a new much more efficient means of production. More production meant more consumption and wealth began to increase rapidly. As a result, the desire for political control over this new wealth also increased.

Starting with the textile industry, the Industrial Revolution transformed manufacturing. From the mid-18th century, a series of inventions led to the full steam-driven mechanization of textile production in Britain only a century later, and productivity skyrocketed. The final major ingredients of the Industrial Revolution were institutions. They encompass a variety of arrangements between economic actors, including political systems, legal codes and financial bodies.