How We Create the Wealth of Nations
Chapter 4: Oikonomia and the Outer Economy
I am sure most readers need no reminder that the English noun, ‘economy’ ultimately derives from the ancient Greek, _________ (hereafter, oikonomia). The word came into English from French, into French from Latin, and into Latin from Greek.1 However, there is a substantial difference between the meaning of oikonomia in ancient Greek and the meaning of ‘economy’ in modern English. In ancient Greek, oikonomia stands for, ‘management of a household or family, husbandry, thrift’.2 In essence, oikonomia refers to a very smallscale, or micro-economic unit – the household. By contrast, ‘economy’ refers to a very large-scale, or macro-economic unit – the economy as a whole. A very basic assertion by Adam Smith (1776/1904b, p. 159), places oikonomia at the centre of the economy: Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident that it would be absurd to attempt to prove it. However, most discussion of economics and the economy today is very remote from oikonomia. Instead, most discussion refers to what we shall call the ‘outer economy’ – drawing an obvious analogy to astronomy where the Earth is surrounded by its atmosphere and beyond that lies ‘outer space’. These elements of the ‘outer economy’, such as financial markets, corporate performance, trade, business innovation, and so on, are important in influencing how well capitalist business can create M-wealth and hence supply consumer needs. But these concepts are remote from oikonomia and remote from the understanding and experience of many ordinary people.
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