Subject and method of economic theory

Theme 1. Subject and method of economic theory

 

1.1 Economic needs, economic benefits and economic resources.

The problem of economic choice

 

The basis of human life is the satisfaction of his needs. Needs - is the need or lack of something necessary to sustain human life, social groups and society. Without addressing they can not exist any individual or society.  The following types of needs are:

• physiological ones(food, clothing, housing, etc.);

• the need for security (protection from enemies, poverty, etc.);

• social needs (interaction with people);

• the need to respect the (authority, position);

• The need for self-development (improvement of human capabilities).

Good - it means (things and services) to meet the needs. Some of them are by nature in abundance, but the majority of them have the property rarity. Uncommon goods express lack at the moment to meet the ever growing needs.

Every good thing has a useful, but not all - value. Value is only the benefits that are rare compared to the needs. For example, water in the river from the point of view of the person who wants to drink, has no value, and is only useful. At the same time the water in the desert is the highest form of utility - value.

Scientists are trying to measure the value, enter the term "marginal utility." Marginal utility is the copy of the material goods that satisfies the least urgent need.

Since the benefits include people in a particular sphere of their activity - the economy, through which to some extent overcome the current scarcity of goods, they are called economic goods. 

Thus, the variety of goods can be divided into two classes:

• Natural products of nature (land, forest, river, air, etc.);

• Economic benefits - the result of a creative production of human activity.

Classification of benefits of diversity: good lower (consumer goods) and higher order (means of production) to tangible and intangible benefits.

Production of goods intended to meet the needs of long historical path of development from simple foraging by elementary tools to use modern technology.  

A quantitative approach to the economy to determine how production is able to meet the needs. You need to know the production capacity of the enterprise. Usually, production capacity is not always enough, then resort to the alternative choice of needs. In meeting the needs of their people everywhere are going to have to choose alternative ways to use the limited economic benefits.

Consider this fact a classic example of the phenomenon of production guns and butter. Oil production in relation to production of guns, it will act as an alternative to it costs.

If the cost of factors of production are made only for oil, the volume of its production will increase. Accordingly will be a lost opportunity for the production of guns. However, the issue of the production of certain products is not mutually exclusive on a "or just guns, or just oil." In fact, created and many other products. Therefore, the choice of economic activity is a necessary measure to use these factors to produce a particular product in the right quantity to meet the diverse needs of people.

 

1.2 The subject of economic theory

 

Economic theory developed as a result of historical science in the evolution of mankind. Human desire to unravel the mysteries of economic processes is not simply his eternal thirst for self-knowledge, to penetrate into the depths of the universe. This commitment is also dictated by the practical needs to regulate economic life, exposing it to people in the right direction.

Economic science took its place in public life, answering the one hand, to the private sector and state regulation of the economy, on the other - to the demands of philosophical understanding the processes occurring in it.

Economic theory is the science of the efficient use of scarce resources in order to meet the material needs of the limitless.

Most economists agree that it is a universal science of the selection problems of limited resources and the economic behavior of the person.

Economic theory examines the economic behavior of people involved in the production, distribution, exchange and consumption of economic goods. Limited economic resources and the impossibility of simultaneous and complete satisfaction of needs leads to the fact that economic theory becomes a positive and normative.

The positive nature of economic theory is that it reflects an objective reality, trying to formulate scientific understanding of economic behavior. For example, the inflation rate of this year has been 6%.

Normative nature of economic theory expresses her desire to find the best form of organization of production, ideal models of human activity in the economy. For example, next year we need to ensure GDP growth of 8%. That is a positive economic theory is learning what is, and expresses a normative view of what is or should be.

Economic theory is classified according to the object of study:

• The national economy as a whole (macroeconomics);

• Firms and households (microeconomics).

 

Microeconomics examines the behavior of individual economic agents. In the center of the analysis - the prices of individual goods, the costs (expenses) of firms on the production, the mechanism of the firm, pricing, labor motivation, interests of consumers, utility goods and services.

Macroeconomics studies the national economic system based on the emerging makroproportsy. The object of her study - the national product, the overall level of prices, inflation, and employment. Economic theory developed as a result of historical science in the evolution of mankind. Basic economic processes are considered in the writings of Xenophon, Plato, Aristotle, and other scholars of the ancient world, in the works of thinkers of ancient Egypt, China and India. But they formed only a few elements of economic knowledge in a single, yet disjointed science. In an era of primitive accumulation of capital, there is the first economic school - mercantilism, the founders who believed that the source of the wealth of society stands trade (O.Kromvel - 1599-1658, Thomas Maine - 1571-1641, Antoine de Montchretien - 1575-1621).

Physiocrats (Francois Quesnay - 1694-1774, Jacques Turgot - 1727-1781, Dupont de Nemours - 1739-1781, V.-R. Mirabeau - 1715-1789) - a school of political economy, which originated in France in the middle of the eighteenth century and was distribution in Italy, UK, Germany and other countries. The founder of the classical theory is Francois Quesnay, who explained the fundamental role of agriculture in the increase of national wealth. Agriculture, in his opinion, was the only productive sector that creates wealth. 

British classical political economy emerged and developed in the seventeenth and eighteenth centuries. Progenitors of this theoretical school were William Petit, Adam Smith and David Ricardo. Unlike the physiocrats British classics have shown that the general form of wealth is the value inherent in the goods and money.

U. Petti (1623-1687) is famous for his book "A Treatise on Taxes and Fees", which was first expressed the idea that the production is the basis of the economy and labor - the most important source of wealth. U.Petti laid the foundations of the labor theory of value, determine the laws that determine the salaries, rents, taxation.

Adam Smith (1723-1790) is the author of the famous book "Inquiry into the Nature and Causes of the Wealth" (1776). He first studied for categories such as division of labor, exchange value and exchange value, wealth creation factors (labor, land, capital), the shape of its distribution among the participants of production (wages, profits, rents). A. Smith found that the nation's wealth is created by labor in the production and the productive power of labor is determined, work - the only source of value of goods.

"Capital," Karl Marx (1818-1883), to some extent complete scientific system of the classical school, and at the same time considering a new classical theory of value and the theory of surplus value.

Marx developed the idea of ​​assigning Ricardo capitalists unpaid labor of workers - the surplus-value analyzes the methods of production, emphasizing the relation to labor productivity growth, explores the nature of wages (both the cost and the cost of labor), examines the process of capital accumulation - the transformation of surplus cost of the new functioning capital, reveals the historical tendency of capitalist accumulation.  

So, the classical economists put forward and prove the concept of economic liberalism, freedom from state care, business and trade, were convinced that only in the absence of government intervention can occur in full force the laws of the market economy, when incentives personal interest of each person ensures the effectiveness of the entire system.  

The history of the twentieth century economic theory starts from the book "Principles of Economics" (1890) Englishman Alfred Marshall (1842-1924). Marshall's system became the basis of Western neo-classical economics of the twentieth century. Neoclassical theory (marginalism) - is, above all, the micro-economic analysis. Foundation of neo-classical design were three schools of economic science at the end of XIX century: Austrian (utility theory), Cambridge (the theory of partial equilibrium A. Marshall and U.Dzhevonsa) and Lausanne (the theory of general equilibrium and Pareto L.Valrasa). In the 20 years of the twentieth century, this trend in the Anglo-American economic literature has been called "economics", replacing the term "political economy".    

The focus of the neoclassical school - firm, industry, consumer, profit maximization and cost minimization, free private enterprise, the market as a system of free prices, profits and losses.  

Dzh.M.Keyns (1883-1946) was one of the most talented students of A. Marshall. The main scientific work of the English economist was the book "The General Theory of Employment, Interest and Money." It is given a deep interpretation of the market system, significantly updated methodological arsenal of economic science and the crisis developed principles of state policy.  

Special merit was his introduction to the economic analysis of the "total national economic variables," which became known as macroeconomic approaches.  

One of the popular trends in the twentieth century economic theory is institutionalism. The founders of this trend - T.Veblen, Dzh.Kommons, U.Mitchell, Dzh.M.Klark, Dzh.K.Gelbreyt, G.Myurdal etc. Research scientists in this direction is inherent in an evolutionary approach to society and the economy, the economy as part of the consideration social life, and "economics" as a social science.

 

1.3 Methods and functions of economic theory

 

The concept of a "method" in Greek means a certain way to achieve something. In any science using certain methods. These methods are divided into:

  a) general (philosophy); 

b) general science (historical, logical, mathematical); 

c) specific (for each branch of science). 

The method of formal logic can correctly apply universally valid form of thought (concepts, judgments, conclusions) and the means of thinking (definitions, laws of mental activity). This helps to achieve the true statements and conclusions made​​. Method is based on the formal logic of knowledge economy of induction and deduction, analysis and synthesis, as well as movement from the concrete to the abstract.

Economic theory better reflect reality, if it uses the dialectic - the doctrine of the general laws of nature, society and thought. These laws include the development of forms of the material world by moving from quantitative to qualitative changes, reflection, self-development of the system by "denial-denial."

An important role in the study of the economy play scientific methods. Among them - the historical method. It allows us to consider the economic system in the intrinsic sequence of historical development. This mode helps to specifically provide all the features of each system at different stages of its historical development.

Economic and mathematical modeling, as one of the system methods, allows to determine the cause of the formalized form of changing economic phenomena, the patterns of these changes and their consequences, and makes it possible to forecast economic developments.

Every science justifies his appointment that through scientific abstractions it in some way reveals the essence of his subject and reveals the objective forms of development. These forms include: the product of labor, its means and tools, requirements, exchange, goods, money, etc. Included in the subject of scientific economic analysis, all of these forms are economic categories, i.e form a kind of concepts that constitute the whole subject of economic theory.

Like science, economics examines economic categories to reveal the nature and laws of production limited benefits. Economic law - is stable, recurring relationship between economic phenomena.

By its nature, the economic laws are divided into two types: objective (independent of the will and desires of the people) and subjective.

Objective laws are divided into general, specific, absolute, laws, trends.

Laws inherent in the organizational and economic relations are common to different eras that are manifested in any social system. They express the direction of progressive development of social production, the objective foundations of the growth of its efficiency, the development of organizational and economic relations, the dialectical interaction of the productive forces and production relations.

Specific laws are unique to a particular mode of production. They express are historically specific relations of production that arise on the basis of various forms of ownership of the means of production, and act only when the relevant social system (capitalism and socialism). As a result, they tend to act as a more or less stable trend, expressing the general direction of movement of production, distribution, exchange and consumption of goods. Along with the laws, there are some trends in absolute laws, always overcoming countervailing factors.

Function of economic theory. Economics studies economic relations and the inherent laws. From the essence of this theory implies its function.

The main functions of economic theory are cognitive, predictive and practical.

Cognitive function is to form a comprehensive study of economic phenomena and their internal nature, which allows to discover the laws by which develops the national economy.

In Western literature in this case we speak of positive economic theory by analyzing the facts and data displays scientific generalizations about economic behavior.

Predictive function of economic theory is to develop a scientific basis for predicting the prospects of scientific, technical and socio-economic development in the long term. It becomes relevant in connection with the development of plans and forecasts for the national economy.  

The practical function of economic theory is the scientific foundation of economic policy, to identify principles and practices of good housekeeping.