early retirement scheme
A modern proposal to reduce unemployment, or make space in a firm for younger workers, by lowering, or making more flexible, the statutory retiring age. The principal aim of these schemes, to redistribute jobs from older to younger workers, can be frustrated if the rising productivity of the firm’s labour force reduces its total demand for labour.
earmarked gold
Gold held at US federal reserve banks for foreign and international accounts; it is not part of the US gold stock.
earmarking
The allocation of public revenue exclusively to the execution of a particular function of government, e.g. using the proceeds of television licences in the UK to finance the British Broadcasting Corporation. Some governments have rejected this approach because of the inflexibility it introduces into public finances, arguing that different types of public expenditure grow at different rates from various tax revenues. Nevertheless, the principle is often followed in social expenditure and is a method of controlling it.
earnings
1 Total pre-tax pay of employees, consisting of basic wages or salaries and all other premium and bonus elements.
2 The income of a business available for distribution to shareholders.
3 The share of the proceeds of production going to a factor of production.
earnings per share
pre-tax earnings divided by the number of shares entitled to a variable dividend. This ratio, when used as an indicator of the long-term growth potential of a company, should be compared with other indicators of a firm’s performance, including its market share and its research and development expenditure. Earnings per share are usually larger than dividend per share as few companies distribute all of their profits.
earnings ratio
Net profit (excluding preference dividends) divided by equity capital.
earnings yield
Earnings (per cent) x par value/market price; for example, for a company with a dividend of 25 per cent earned on a share with a par value of £1 with a market price of 125p, the earnings yield is 25 x 100/125 = 20 per cent.
East Asian economic crisis
The crisis of 1997-8 in the financial sector of five Asian countries: Indonesia, South Korea, Malaysia, the Philippines and Thailand. In 1996 there was a capital inflow into these countries of $73 billion but in 1997 an outflow of $30 billion. With financial deregulation came careless lending by international banks to these Asian countries. When the extent of indebtedness was known, the creditors panicked. There was a fall in exchange rates, an ineffective rescue effort by the IMF and subsequently a banking crisis and a severe fall in effective demand.
easy money policy
A relaxed monetary policy permitting high rates of growth of the money supply to keep interest rates low. This has been advocated as a means of keeping aggregate demand high and unemployment low. The UK and the USA used the policy in the years immediately following the Second World War.
ecfare
Robertson’s abbreviated expression for economic WELFARE.
eclectic theory
A theory drawn from various sources to explain foreign direct investment. Location theory is employed to explain why production occurs at several locations; internalization theory explains why the internal market is preferred to the external; ownership advantages, especially of product brands and patents explain why a firm produces overseas rather than license its technology. This theory has been used to explain the expansion of multinational banking and of hotel chains.
ecodevelopment valuation
Valuation of an environment according to relative scarcity and minimal dislocation.
ecological capital
The changing stock of plant, animal species, the physical environment and the weather.
ecological footprint
The amount of land an individual needs to support his or her present consumption.
This concept was anticipated by Richard cantillon’s land and labour theory of value.
e-commerce
Trade in goods and services effected by email (electronic mail).
econometrics
The measurement of economic relationships using statistical techniques, and the testing of economic theories. Econometrics has become the basis for economic forecasting.
It was inseparable from mathematics and statistics as an academic discipline until the foundation of the Econometrics Society in 1931. Although a quantitative approach to economics goes back to petty, in the twentieth century it owes its origins to Henry Moore’s attempt in 1911 to provide statistical evidence for marginal productivity theory. Gradually it changed its emphasis from searching for constant economic laws to probabilistic models.
The major techniques most frequently used are multiple regression, two-stage least squares and a multitude of tests to prevent problems such as autocorrelation. After 1945, the growth of macroeconomics and the more sophisticated study of consumer behaviour inspired a great volume of econometric work. The data used are either time series provided by official governmental statistical organizations or cross-section data collated through surveys.
economic agent
A person or firm with the power to make decisions about output, investment, prices, etc.
Economic and Social Council
United Nations council elected by the General Assembly of the UN to co-ordinate its economic and social work. Its commission’s remit includes population, human rights, the status of women, drugs and regional problems. It has fifty-four members.
economic anthropology
The study of socioeconomic organizations. In succession to the classical political economy of quesnay, smith, ricardo and marx that traced the economic consequences of human nature, it has examined economic behaviour. veblen used an anthropological approach in his distinctive institutional economics. Increasingly economic anthropologists have studied non-market economic institutions.
economic calculation
Valuations based on present and expected future conditions used to allocate scarce capital resources among competing uses. The purpose of the calculation is to achieve economic efficiency. mises argued that markets are essential to this process and used this concept to attack socialism.
economic climate
The persisting state of an economy apparent in its general trends over a specified time period.
Economic Community of the countries of the Great Lakes
An economic association of Zaire, Rwanda and Burundi set up in 1979 to establish trade agreements.
Economic Community of West African States
An economic association with free movement of labour and a proposed common external tariff set up in 1975. The member countries are Benin, Gambia, Ghana, Guinea, Guinea-Bissau, Ivory Coast, Liberia, Mali, Mauritania, Niger, Nigeria, Senegal, Sierra Leone, Togo and Upper Volta.
economic crime
A crime undertaken for financial gain. Its specific nature depends on the rules of a particular economic system. In the former USSR frequent use was made of this concept. It covers both the theft of state property and the illicit making of profits; in the UK, it refers to fraud and insider DEALING.
economic devolution
1 The transfer of all economic decision making to individual households and businesses.
2 The principal characteristic of a minimal STATE.
economic efficiency
The simultaneous achievement of both technical and allocative efficiency. Far-rell also described it as product or global efficiency.
economic forecasting
Predictions of the values of particular economic variables, often on the basis of extrapolation of past trends, modified by other information and using the techniques of econometrics. National economic forecasting is an essential element of demand management, as well as a first stage in national and corporate planning. The forecasts drawn up by private institutes and newspapers provide different views of the future to the government’s.
economic geography
Economic analysis of the location of economic activity, together with the study of land use and urban areas. Although von Thimen was, in a sense, the father of location theory, it was not until the 1950s that much detailed work was done in this branch of geography.
economic good
A scarce good, yielding utility, which must be allocated either by rationing or by the price mechanism; not a free good.
economic growth
The growth in the total, or per capita, output of an economy, often measured by an increase in real gross national product, and caused by an increase in the supply of factors of production or their productivity.
This approach was central to Smith’s Wealth of Nations and to much of classical economics. harrod and domar in 1948 were major founders of modern growth theory. Growth theorists have wedded their work to development economics and to a study of economic planning. Ecolo-gists and others concerned about the scarcity of natural resources have advocated zero economic growth rates as appropriate for the twenty-first century. A writer as early as John Stuart mill (in his Principles of Political Economy, topic IV, ch. 6) extolled the benefits of the stationary state.
economic indicators
statistics used in economic forecasting to analyse the state of an economy. Overall indicators of economic activity include indices of industrial production, manufacturing output, engineering orders, retail sales volume, registered unemployment and unfilled vacancies. Indicators of output show the growth of production of principal industries; indicators of external trade include indices of export and import volume, the visible and current balances and the terms of trade plus the size of the official reserves; financial indicators include changes in various measures of the money supply. Inflation indicators include those for retail prices, basic materials and wholesale prices of manufactured products.
economic institution
1 An organization which is a component of an economy.
2 A system of property rights.
3 A norm of economic behaviour.
4 A decision-making unit.
5 A type of contract, e.g. a form of insurance to cover a particular sort of risk.
economic integration
The joining together of economic activities, especially the trade of several countries. This can take different forms, including free-trade areas, customs unions, common markets and federations of national economies. Different forms of integration can be distinguished by the extent to which individual national governments retain independence in decision making.
economic journals
The learned academic periodicals, mostly published quarterly, containing articles and topic reviews, which, by presenting the research findings of the economics profession, give the clearest indication of the present state of the subject. Some of them, e.g. the American Economic Review, attempt to cover all branches of economics, but increasingly journals specializing in a particular branch of the discipline have been founded. Many economists only publish articles and avoid publishing topics because of the great status the journals have attained in the economics profession. Recently many of these periodicals have added assessments of computer software to their topic reviews. The leading academic journals of economics include American Economic Review, Bank of England Quarterly Review, Economica, Economic Journal, Journal of Industrial Economics, Journal of Political Economy, Manchester School of Economic and Social Studies, National Institute Economic Review, Oxford Economic Papers, Quarterly Journal of Economics, Review of Economic Studies, Review of Economics and Statistics.
economic justice
Distributive justice based on fully informed and voluntary transactions. Since Aristotle’s Nicomachean Ethics many economic writings have asserted the importance of ensuring that exchange is fair to both parties and that the fruit of production should be distributed to factors of production according to their relative inputs.
economic life
The period during which an asset is expected to yield a return. For the purposes of calculating depreciation, assets are assumed to have a standard life. Houses are given a notional life of 80 years, coal mines 100 years and machines 8, 16 or 25 years.
economic man
A person, motivated by self-interest, who attempts in consumption, work and leisure to maximize his total utility. Much of classical and neoclassical economics makes this assumption about human nature. To behave as an economic man, it is necessary to engage in many mathematical calculations.
economic methodology
The different approaches to the task of formulating economic theories and models. Economists have inevitably been influenced by parallel debates in science, especially Popper’s assertion of the falsification principle, Kulin’s emphasis on paradigms and Lakatos’ stress on scientific research programmes. Nevertheless, throughout the development of economics particular works on, and demonstrations of, economic methodology have been prominent. in the classical period, ricardo demonstrated the power of simple economic model building when setting out the effects of protectionism on wages, profits, rent and economic growth. John Stuart mill praised but did not practise the a priori abstract approach to formulating economic theories, and senior considered the crucial difference between normative and positive issues. In the 1930s, robbins clearly set economics apart from other social science disciplines by making the study of ‘ends and means which have alternative uses’ central to the subject. With the growth of mathematical economics and econometrics in the twentieth century, it was inevitable that the formalization and empirical testing of theories became the major ways in which economists went about their work: writers such as samuel-son guided economics in this direction. However, the empirical thrust of much of present-day economics is balanced by the wrestlings of welfare economists who have sought to put value judgements on a sounder basis.
economic model
A simplified picture of economic reality showing the interrelationships between a few economic variables. cantillon, ques-nay and ricardo were the first economists to formalize their economic theories in this way. With the increasing use of mathematics and econometrics by economists, economic models have become more complex.
economic paradigm
A major principle central to a school of economics as it provides a fundamental analytical tool of economic theorizing. MARGINALISM and NEOCLASSICAL ECONOMICS, for example, have been able to demonstrate the powerful applications of the marginal concept backed up by calculus. in periods when there has been great dissatisfaction with the state of economics, a cry for a new paradigm has often heard: in the 1930s the concepts of keynes in his General Theory provided one for a generation of macroeconomists.
economic planning
The allocation of economic resources and the determination of production on the basis of a plan; the alternative to allocation by markets. The Soviet plans of the 1930s were the first major attempts to organize entire national economies according to this method. In the post-war period, French indicative planning also attracted much attention. Governments also use planning for aspects of their economies, particularly for regional development and major investment. Since planning essentially commits a government to a future course of action, it can lead to many inflexibilities, including a slow reaction to change, especially in the foreign trade sector. As planners rely greatly on economic forecasting the difficulties of modelling complex economies can make the quality of their plans suffer. Also planning necessitates much bureaucracy, which is both costly and often opposed to entre-preneurship. Increasingly planning in countries such as Hungary allowed the reintroduction of market mechanisms for small-scale production. At the beginning of the twenty-first century there is little enthusiasm for the revival of large-scale national planning.
Including the opportunity costs of employing all inputs.
economic programming
The co-ordination of the independent production decisions of independent companies in late capitalist economies.
economic refugee
A person migrating from one country to another to improve economic prospects but often posing as a person fleeing from political persecution. An increasing European phenomenon after the fall of communism and conflict in the Balkans.
economic rent
1 part of the earnings of a factor of production in excess of its transfer earnings arising from its scarcity. (See the figure.)
2 A factor’s earnings over its opportunity cost, according to pareto.
3 The full market rate for housing services.
As land was regarded in classical economics as the only fixed factor of production, it alone earned rent. However, as any factor of production can be fixed in supply, ‘rent’ can be earned by any factor of production. Popular examples of factors with an inelasticity of supply abound. Labour can earn economic rent: especially persons with rare talents such as opera singers and top sports players
economics
‘The study of the general methods by which men co-operate to meet their material needs’ (sir William Beveridge); ‘the study of mankind in the ordinary business of life’ (A. Marshall); ‘a science which studies human behaviour as a relationship between ends and scarce means which have alternative uses’ (L. Robbins); ‘Economics investigates the arrangements between agents each tending to his own maximum utility’ (F.Y. Edgeworth); ‘Wants, Efforts, satisfaction – this is the circle of Political Economy’ (Frederic Bastiat); ‘Not a gay science . . . what we might call . . . the dismal science’ (Thomas Carlyle).
First discussed by the Ancient Greeks, and the subject of general text topics since the eighteenth century, economics has changed its focus as the concerns and techniques of its practitioners have developed. originally the word meant ‘household management’ as the household was the basic economic unit of the time, including both farming and manufacturing activities. But the Greeks also, to their credit, raised the basic issues of value, the nature of money and the division of labour.
The word ‘economistes’ was first used by the French physiocrats in the 1760s and in that century cantillon and smith produced the first comprehensive treatises on the subject. smith, and his classical disciples, produced theories of growth, value, distribution and taxation. cantillon, the physiocrats and ricardo introduced model building into economics. Although methodological debates were present in the subject as early as John Stuart mill and senior, particularly in the standard debate about deduction and induction, it was DUPUIT, the MARGINALISTS and EDGEWORTH who first encouraged a mathematical treatment of economic theory.
The hints of earlier writers have provided the foundations for present-day economists. issues of welfare, raised by marshall and his follower pigou, led to a formal study of welfare economics. The concern for measurement, first proposed by petty, has inspired the econometric testing of economic theories. The wider discussion of economics as ‘political economy’ has linked economics to ideological positions in current policy debates, and later keynes produced a general theory of the economy which determined the postwar agenda for macroeconomic theory. The increased size of the economics profession (in the UK there were only sixteen professional economists in 1908) has inevitably led to subdivision of the subject, especially in more empirical areas.
economic sanctions (F1)
Trade and financial penalties and barriers to trade imposed upon a country in order to induce it to change its basic political system or policies. occasions when this strategy has been used include the 1930s when Italy invaded Abyssinia, the 1960s when southern Rhodesia (now zimbabwe) refused to adopt a system of majority rule, the 1980s to force South Africa to treat all racial groups equally and the 1990s to end Iraq’s occupation of Kuwait.
The use of sanctions has long been available as an ultimate economic weapon (e.g. the Continental System of Napoleon at the beginning of the nineteenth century), but it has always been difficult to enforce sanctions universally. In the form of a trade embargo, sanctions stimulate domestic industry to produce import substitutes, but this movement of an economy towards autarky causes losses in economic welfare as production cannot be concentrated in the most efficient industries. Article 41 of the Charter of the United Nations mentions sanctions as a permissible form of international action.
economics and psychology
psychological theory has been used in economics to improve the modelling of the motivation of economic agents, to understand how human beings behave when faced with uncertainty and to learn about the formulation of preferences. Psychology has contributed to many areas of economics, including the examination of entrepreneurship, unemployment, poverty, taxation and marketing.
economics as rhetoric
A disciplined form of conversation that rejects modern quantitative economics which has prediction as its goal, in favour of a literary approach which examines the nature of economists’ various arguments, recognizing the metaphors used and questioning the objectivity of the subject.
