The Economy: An Overview

We speak habitually of “the economy” in generalizations as though they are the reality being described and not merely placeholders for the myriad individual transactions that constitute the commercial, business, and financial activities of a society. The danger in making economic generalizations is the same that arises from speaking of any of the social sciences as the interaction of impersonal forces – it divorces understanding from both the human motivation and the accidental occurrences responsible for causing most events. The problem, of course, is that the fundamental economic activity is so vast as to make most individual transactions irrelevant. That alone would lead us to seek more meaningful information in the measures that show the accumulated effects of multiple transactions, in the way that most of the economic activity undertaken by a business firm over the course of a year can be summarized in its financial statements. At the same time, we try to look behind the balance sheets and income statements to understand who the individuals who engaged in the transactions were and what they hoped to achieve.