As has been seen already economic problem is universal in nature. Though over a period of time the pattern of consumption, human ideologies, social, political, economic & technological conditions have changed the crux of the economic problem has remained unchanged i.e. optimum allocation of scarce resources with alternative uses among unlimited wants of different urgencies.
Every economy is faced with the basic aspect of the economic problem viz. what, how, how much, for whom, who should produce; how to allocate resources, how to distribute goods & services, how to increase efficiency, development & growth, what incentives to give to increase production etc.
Some institutional framework is necessary to tackle the economic problem which is universal.
Human societies from times unknown have tried out various organisations to tackle the economic problem, which includes Customs, Conventions, Free market, socialists & mixed economic systems.
The Stages of Economic Evolution
The stages of economic growth can be studied from the point of view of the relationship between production of goods & consumption of goods. These stages are mainly three.
1. The domestic economy:-
In the domestic economy stage the tribe & much later the household was the consumption & production unit. It was a self-sufficient unit. All the goods required were produced by the members, by adopting division of labour. There was very little exchange between the tribes & later the households.
This type of a economy prevailed during the hunting stage, pastoral stage & the early agricultural stage when self-sufficiency was based on land which was held in common by the tribes & later in the form of small holdings by the family–after the break-up of the tribes.
Due to implements, however each household could produce more than what was necessary for self-consumption & therefore the surplus could be exchanged for products produced by other people. eg pots, cloth utensils etc. Therefore the barter system of exchange evolved. This system made limited use of money & the household was still a self-sufficient unit.
2. The town economy:-
The town economy emerged as households began to produce for self-consumption & for exchange. Therefore towns began to develop, grow in size & a new class of merchants & artisans emerged.
Every town with its surrounding area became an economic unit which held weekly markets. Farmers sold surplus food grains to merchants who then sold it to retailers to consumers. Villagers purchased goods from merchants & artists. Therefore trade it the village increased, increasing the use of money as a medium of exchange. Annual fairs were held in towns which were attended by foreign merchants for the sale of foreign goods.
Gradually, merchants became richer, accumulated capital which could be invested for commercial purposes. However in spite of this output was small, trade was local & the use of money & capital was limited. Development of transport was inadequate. This stage continued till 1500 A.D.
3. The national economy:-
Gradually the town economy gave way the national economy because commerce in spices, luxury goods & precious metals began to increase, due to the geographical discoveries of Vasco-da-Gama & others in the last decade of the 15 th & the early 16 th century. The merchants accumulated more & more wealth due to profits made in trade.
It is this capital that was invested in modern industries based on the factory system under which machinery was used to increase industrial output rapidly. The former artisans were gradually turned into industrial workers. Methods & organisation in agriculture trade & transport changed rapidly & simultaneously banking & credit system made rapid progress, therefore the entire nation became an economic unit.
With development of modern means of transport we entered the stage of the world economy.
Domestic and town economics came under the old economic order and the national economy comes under the new economic order.