Part III

Between 1945 and 1973, the economies of the industrialized nations of Western Europe, Japan, and the United States grew rapidly. Several circumstances contributed to this, but perhaps the most important was that energy was plentiful and cheap. In the early 1970s the Organization of Petroleum Exporting Countries (OPEC), which controls the bulk of the world's oil reserves, sharply raised its prices. This hampered economic growth worldwide. The heightened oil prices increased other product prices, leading to inflation and reduced purchasing power. This in turn depressed sales of consumer items, resulting in layoffs. Poorer nations had to borrow money, and their interest payments further slowed their development plans.

The various economic problems of recent years have stimulated serious debate about the proper role of public policy. In the 1980s a different solution was tried in the United States and Great Britain. Attempts were made to diminish taxation and government regulation on private enterprise and thus, by enlarging the potential profits of corporations, to encourage additional investment, higher productivity, and renewed economic growth.

In the 19^th century, economics was the hobby of gentlemen of leisure and the vocation of a few academicians; economists wrote about economic policy but were rarely consulted by legislatures before decisions were made. Today, there is hardly a government, international agency, or large corporation that does not have its resident economist.

Clearly, much depends on how one defines the job of an economist: the list of the National Science Foundation is confined to persons whose chief competence is in any one of the recognized economic specialties. Of the 11,000 professional economists, about 4,500 were employed as teachers of economics; the rest worked in various research or advisory capacities, either for themselves, or for government. This leaves out of account many others employed in accounting, commerce, marketing, and business administration; they may think of themselves as economists, but their professional expertise falls within other fields.

There were about 75 English-language journals in economics and another 25 in various foreign languages, with new ones appearing every year. This implies the publication of about 1,500 scientific papers per year, not to mention the 700 new books on economics published every year. This is indeed "the age of economics" and the demand for their services seems insatiable.

Economic affairs have never before had quite the significance which is attached to them today. This is because, although economists have always been concerned with the same basic question of how to make the best use of scarce recourses, the sort of answer which they have given has radically changed over the past few decades.

Laissez-faire thinking of the nineteenth century was optimistically based on the idea that for the nation to prosper and for resources to be used to maximum advantage, all that was required was for individuals to resolutely pursue their own ends. The price mechanism, Adam Smith’s “invisible hand”, would then ensure that devotion to private gain would automatically maximize the welfare of the community as a whole.

Economics in such circumstances had a limited appeal. The economic mechanism could be described and explained, but then all that remained to be done was to stand back and admire its working. Any tampering would only reduce the benefits which it was geared to produce.

Economics today is more interesting than ever before, because we now realize that the economy is neither an automatic mechanism which can safely be left to chug smoothly along its own optimal path nor governed by blind and unpredictable forces over which we can have no control. Its proper behavior can only be secured by deliberate manipulation, and developments in economic theory have indicated some of the basic techniques necessary for this purpose.

1. What was the main reason for rapid growth of the economies of industrialized nations?

2. How did the United States and Great Britain try to solve their economic problems in the 1980s?

3. Why do people call economics of nowadays "the age of economics"

4. What was laissez-faire thinking of the nineteenth century based on?

5. Why is economics today more interesting than ever before?