The economic theory; the subject, the method. Problems and tendencies of development of the economic theory

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Occurrence and development of economic idea.
2. The subject and the methods of the economic theory.
Structure and functions of economic theory

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Theme: №1   The economic theory; the subject, the method. Problems and tendencies of development of the economic theory.

  1. Occurrence and development of economic idea.

      2. The subject and the methods of the economic theory.

  1. Structure and  functions of economic theory

 

       In a daily life people face with necessity to buy and sell, receive monetary incomes, to distribute them, to form personal, family and state budgets, to postpone and use savings. A little who left indifferent with change of the prices and inflationary processes. The financial position of people in many respects depends on a state of affairs at stock exchanges, rates of exchange and interest rates. All these diverse phenomena also form an economic life of a society.

  Economy – a special sphere of a public life.

       The main assignment of economy will consist in creation of the riches, capable to satisfy material needs of people. To create such riches, people use available for these purpose opportunities ("resources"). Thus they enter interactions with each other.

     The  term economics was coined around 1870 and popularized by influential “neoclassical” economists such as Alfred Marshall, as a substitute for the earlier term political economy, which referred to “the economy of polities”- competing states.  The term political economy was used through the 18th and 19th centuries, with Adam Smith, David Ricardo and Karl Marx as its main thinkers and which today is frequently referred to as the “classical” economic theory. Both “economy” and “economics” are derived from the Greek oikos- for “house” or “settlement”, and nomos for “lows” or “norms”.

        Economics studies how individuals and societies seek to satisfy needs and wants through incentives, choices, and allocation of scarce resources. Alfred Marshall in the 19th century informally described economics as “the study of man in the ordinary business of life”.

         The modern economic science grows out its long historical development.

         The appreciable trace in a history of economic knowledge was left with antiquity. Ancient Greek and ancient roman historians and philosophers have spent many efforts to development of principles of natural managing. They also showed the big interest to development of commodity relations. The Roman right of a private property became classical for all subsequent history and has played an outstanding role in progressive development of economic relations.

       The antiquity, antiquity and middle Ages marked itself the initial stages of becoming of economic knowledge as opportunities of these epoch have been limited.

       The valid history economic spiders began since that moment when the system (theoretical) knowledge of them began to develop of separate representations about economic events. An objective basis of formation of the valid economic science was decomposition feudal (agrarian natural) and development bourgeois (industrially market) relations of production that was accompanied by becoming of economy as a uniform organism.

            There have been different and competing schools of economic thought pertaining to capitalism from the late 18th century to the present day. Important schools of thought are Mercantilism, Physiocracy, Classical economics, Marxian economics etc.   

       As historically the economy begins with the trade, the first direction in a history of an economic science became mercantilism. Representatives of mercantilism were theorists of sphere of the manipulation. They saw the main source of riches of the nation in successful trade which reduced to a principle - «to sell much, it is not enough to buy ". Extremely important for all subsequent history of an economic science the step - from research of sphere of the manipulation to research of manufacture - was made by «classical school ". Its ancestors - physiocrats - counted a true source of riches agriculture, work on the ground. Proceeding from this, they have formulated fundamental idea about natural character of economic processes, having proclaimed a priority of a principle «Laissez faire « (" give people to do that they want "). This idea has imposed an essential print on all further development of the economic theory and practice.

       Later representatives, classical school among which the special place belongs to A. Smith, to «the father of economy ", has overcome the limited sight of physiocrats on a source of public riches. They connected the given source not only with an agricultural production, but also industrial.

       Many traditions of classical school have been perceived and continued by the Marxist economic theory. Its main feature - consistently class treatment of the contents of economic processes, expression of a position of working class.

       Many directions of the economic theory of XIX century developed beyond the framework of classical school and Marxism. Such of them as «the theory of limiting utility» and " the theory of factors of manufacture ", have made a source of modern most authoritative economic concepts.

       The economic science has passed a complex way in XX century. It has been marked by processes of differentiation and integration of economic knowledge, occurrence of its nonconventional branches. A number of new directions and schools were issued in independent theories. Despite of distinctions in understanding of many phenomena and processes, all of them have functional character. It means that the modern economic science connects the basic efforts with development of ways of perfection of the economic mechanism of a society.

             

      Subject and method of the economic theory

      People not only participate directly in economic attitudes, but also direct the efforts to understanding the nature of these attitudes and laws of their development. A special - economic - science has arisen. It concerns to the category of public (social) sciences as economic events are carried out by means of public relations between people.

In all social sciences definition of their subject makes a challenge. An economic science does not represent exception; it is defined as a science:

- About riches;

- About the kinds of activity connected to monetary transactions;

- about attitudes at manufacture, distribution, an exchange and consumption of material benefits;

- About daily business ability of people to live, extraction of means of subsistence by them and use of these means;

- About use of the limited resources for creation of the various goods and their distribution between members of a society with a view of consumption.

    Generalizing these definitions, it is possible to count, that the economic theory studies interaction of people during search of effective ways of use of the limited industrial resources with a view of satisfaction of material needs of a society.

  If the object of science opens "what" is learnt, the method - "how" is learnt. The method cannot be derivative; it should correspond to features of a subject of a corresponding science.

    "Goods", "money", "price", "capital", "wages", "profit", etc. are economic categories (so, well familiar to all students and such desired grant - too an economic category). Categories make logic "skeleton" of the economic theory. Each of categories takes the place, being in interrelations with other categories.

     The facts - initial base of knowledge of an economic reality. They can act as the data of statistics, the information on events, behavior of people, the various organizations and so forth.

     If to subject to studying a significant file of the facts concerning the various sides of an economic reality, to reveal their internal connections and dependences the received knowledge will have theoretical character. The theory is complete (system) knowledge of an object of science, expressed by system of categories, principles and laws.

      Studying the validity, the economic idea of a society goes from the facts, their accumulation, ordering and generalization to the formulation of theoretical positions and principles. It is also a method of induction - deducing of theoretical positions and principles from the facts, movement of idea from the particular to the general.

       Work with the facts, by virtue of their significant set, represents the big complexity. "Not sink" in the sea of the facts, to carry out their correct grouping, usually use preliminary formulated principles and theoretical assumptions which refer to as "hypotheses". It allows the facts to find conceptual interpretation, and to principles and hypotheses to pass check by the facts. Such cognitive reception carries the name "deduction" that means movement of knowledge from the theory to the facts, from the general to the particular.

      Though the induction and deduction represent opposite ways of research of economic events, in real cognitive process it is difficult to divide them. They inter supplement each other, providing thus effectiveness of a method of a science.

      In economy the special role is played with quantitative dependences. They form the contents of many economic events. For example, such fundamental phenomenon as "income", arises only as obligatory excess over charges, "demand" is expressed in quantity of the goods which buyers for a determined price, etc. are capable to get. Such feature of a subject of an economic science causes necessity of wide application for it of mathematics.

         

      Structure and functions of economic theory

      The economic science has complex structure. It reflects a complex structure of the economic validity.

       The branch organization: a national economy predetermines existence of such economic sciences, as "industrial economy", "rural economics", "transport economics",» economy of construction ", etc. The Special place in this number is occupied with «economy of wildlife management «as ecological processes have interbranch character.

        Economics is usually divided into two main branches:

    • Microeconomics examines the economic behavior of individual units such as businesses and households in face of scarcity and government interactions, as well as the economic consequences of these decisions on other actors.
    • Macroeconomics examines an economy as a whole with a view to understanding the interaction between economic aggregates such as national income, employment and inflation. Note that general equilibrium theory combines concepts of a macro- economic view of the economy, but does so the microeconomic viewpoint. 

        To functional economic sciences concern: «economic cybernetics ", "book keeping", «the finance and the credit ", "marketing", "management", «economic statistics ", etc.

       Economics can also be divided into numerous sub disciplines that do not always fit into the macro- micro categorization. These sub disiplines include: international economics, development economics, industrial organization, public finance, economic sociology, institutional economics and economic geography.  

       In a number of the countries with the big territory there are regions with special and sometimes rather various conditions of economic development. It causes requirement for «regional economy «as special to a science.

       The general economic theory and private economic sciences are inextricably related with each other. The theory provides private sciences with principles which embody the point of view of economy as a whole and they are used as means of knowledge of those or other parties of the economic validity. In turn, the knowledge extracted by private sciences, serve for the economic theory "material" of new basic generalizations.

       The question on functions of the economic theory is a question on its direct applicability. The understanding of last is not reduced only to applied aspect; it includes still cognitive and methodological functions.

     As well as any other branch of scientific knowledge, the economic theory is directed first of all on knowledge of real economic processes, i.e. disclosing of laws of development of economy. It is important to mean, that the economic theory studies economy as a whole, instead of its separate sectors, spheres, branches and so forth. Therefore it does not open "secrets" about ways of reception of large incomes, achievement of business success, receptions of domestic bookkeeping. Nevertheless, the knowledge of economic bases of a society is the important element of its high educational and cultural level, an indispensable condition of carrying out of effective economic policy.

      The economic theory is not a set of ready rules, recommendations, which people apply in all cases of a life, facing economic problems. Most likely, it is a method, focusing knowledge of a corresponding subject. The economic theory is an intellectual tool, mastering which allows coming to correct decisions in concrete situations.

       The economic theory is always used for development of practical economic policy. Not casually many outstanding economists - theorists are involved in government agencies for work as advisers and experts. Economic, researches are necessary for creation of various programs which are directed on realization of spent economic policy, revealing of the basic tendencies in development of a national economy, development of strategic economic forecasts

 

Theme 2:   The general problems of economic development

 

  1. Objective conditions and contradictions of economic development

     2. Efficiency of use limited resources

  1. The basic economic problems facing to a society

 

      Ultimate goal of development of any economic system is the satisfaction of requirements of a society. On it the process of manufacture is directed which is inextricably related with consumption of the goods and services, to an expenditure of resources available of a society for manufacture of the goods and services.

     All problems of economic development are connected to an expenditure of resources for satisfaction of requirements. And all decisions of these problems are based on two fundamental economic axioms.

    The first axiom — requirements of a society (individuals and institutes) are boundless, are completely unsuitable.

    The second axiom — the resources of a society necessary for manufacture of the goods and services, are limited or rare.

     The marked contradiction is authorized by a choice. The economy describes and analyzes a choice from the limited resources for satisfaction of requirements.

     The requirement is a need in something necessary, for maintenance of ability to live, development of the person and a society as a whole.

      Economists study material requirements which are understood as desire of consumers to get and use the goods and the services delivering to them pleasure or satisfaction.                                                                                                     

     During satisfaction of requirements are formed new in the quantitative and qualitative relation of requirement. Continuous increase, or an eminence, requirements proves to be true the numerous facts from economic evolution of mankind. The person has passed all stages — from primitive consumption of resources of the nature to rational development and use of the resources natural, human and made by the person.

   Requirements are subdivided into primary, satisfying vital needs of the person (requirement for clothes, a meal, and habitation), and secondary to which all others concern (for example, requirements of leisure: cinema, theatre, sports). A wide spectrum of the products intended for satisfaction of requirements, sometimes subdivide into articles of prime necessity and a luxury goods. That is articles of prime necessity for one person, can appear a luxury goods for another and on the contrary, that else recently was considered as a luxury goods, now - is the most usual articles of prime necessity.

    To material requirements concern also services which, on the level with the goods, satisfy our requirements (car repairs, a hairstyle of hair, and consultation of the lawyer, removal of an appendix and т, item). Many products also are bought for the sake of services: the automobile, the washing machine, etc.

   To the material structure also needs of the enterprises, government agencies and public organizations., constructions, the equipment, vehicles, warehouse and many other things buildings are necessary for performance of the industrial purposes for private enterprises are included To a society, for satisfaction of collective requirements of citizens of the country, railways, highway, schools, hospitals, military techniques are necessary.

     Means with the help, of which requirements are satisfied, refer to as the blessings. One blessings are available at the order of a society in unlimited quantity (for example, air), others — in limited. The lasts are called the economic blessings. As the economic blessings are available in the limited quantity resources – the means are necessary for their reception.

 

 

 

Efficiency of use limited resurges

        Resources are the factors used for their limited manufacture of the economic blessings. Under economic resources are understood all natural, human and made by the person resources which are used for manufacture of the goods and services.

      All variety of resources can be classified according to various approaches. Resources are subdivided into the following kinds: 1) material resources — the ground, or raw materials, and the capital; 2) human, resources — work and enterprise activity.

      To the concept "ground» concern all natural resources: arable lands, woods, deposits of minerals, water resources (resources of the rivers, the seas and oceans).

      The « the capital, or investment resources » concept covers all

The made means of production used in manufacture of the goods and services and delivery to their end user (buildings, constructions, the equipment, etc.). Process of manufacture and accumulation of means of production refers to as investment.

      The term "work" designate all the physical and the mental faculties of people used in manufacture of the goods and services.

       Enterprise ability or, easier, enterprise is understood as the special kind of human resources consisting in ability most effectively to use all other factors of manufacture.

      All economic resources, or factors of manufacture, possess one common property: they are rare or are available in the limited quantity. This rarity is relative and means that resources, as a rule, are less, than necessary for satisfaction of all requirements at the given level of economic development.

    The social production is not capable to make, and consequently, to consume all volume of the goods and services which the society would like to receive.

     As our requirements are boundless, and our resources are rare, we are not capable to satisfy all requirements. It is necessary to solve,

What goods and services are necessary for making and what in the certain conditions it is necessary to refuse?

          When the economy is on border of a production potentiality a choice every time occurs between the maximal volumes of manufacture of the goods A and B.

However more often the manufacturer stays in a point "a" when there is a reserve of resources for simultaneous increase in the connected results (both the goods and, and goods В). In a similar situation the number of alternatives vastly grows, and here alternatives are not connected, as on border of a production potentiality, with growth of one product due to absolute loss of another.

       Really, on border of a production potentiality the choice is adjusted only by allowable size of «the alternative price ". Inside spheres of a production potentialities (point "e") there is other situation:

а) There is a reserve of resources for expansion of manufacture;

б) Presence of a reserve removes restriction, applied the alternative price, allowing simultaneously to increase manufacture and A, and B.

     It complicates a choice of the optimum decision; however each elected variant still makes impossible other variants. Distinction only that if on border of a production potentialities the question was inevitable loss of any result now about loss which could not be! The quantity of the goods which should be lost at maximization of manufacture in conditions of incomplete use of resources, in the economic theory has received the name an alternative expense ".

     The economic science understands not really taken place charge of resources (it would be the valid, real production costs), and as it potential loss of those goods which could be made of the applied resources.

      Such understanding of an expense is unusually for not economists. Actually suffered expenses are clearly, but to count expenses, losses that are not made but that could be made of the same resources at their other use; - such understanding of expenses is inherent only in the economic theory.

To what set in a point "B" variants should be preferred?

      The economic theory answers this question in this way: it is necessary to count an optimum variant what - with other things being equal - provides peak efficiency of use of resources. The formula of efficiency as we remember is the relation of a maximum of possible result to a minimum of necessary expenses. As in market economy under "result" mean size of the monetary income, and under "expenses" size of a monetary outlay on resources the habitual formula (results / expenses) turns in "market" (incomes / charges).

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