Lecture 1. The subject and methods of economic theory.

 

The term "economy" (from the Greek “oikonomike”) means "farm management".

Economy is the economic activity of society and the totality of relations in the system of production, distribution, exchange and consumption. The main function of Economics is to constantly create such benefits, which are needed for human activity and without which society could not develop. Economics helps to satisfy human needs in a world of limited resources.

The Economics society is a complex and comprehensive body, which provides the livelihoods of every person and of society.

In primitive society the level of economic development was low, providing consumption on the verge of physical survival. First, primitive people procured the means of subsistence by hunting and gathering, but as a result of the Neolithic revolution originated agriculture and livestock. The development of the society led to the division of labor and social inequalities that gave rise to social classes and the state. Have any slavery.

Gradually developed barter, which first took the form of barter, but with the advent of money has become a trade. However, in societies of the Ancient world and the middle ages was the predominant subsistence farming.

From the end of XV century began the Era of great geographical discoveries that led to what happened global economy and the era of primitive accumulation of capital.

Since the last quarter of the eighteenth century, the industrial revolution, which led to the fact that in most developed countries the majority of the population by the end of the nineteenth century were employed not in agriculture and in industry. The prevailing economic system was capitalism, there was the process of transforming a traditional society into a modern, agrarian society to industrial society.

In the twentieth century in a number of countries have set up a command socialist economy. In the remaining countries was the development of capitalism. In the second half of XX century began the technological revolution, which resulted in the industrial society in most developed countries has become post-industrial.

Economic theory studies the processes occurring in the economy. The object of economic theory - the economy as a distinct sphere of human activity.

The subject of economic theory is a set of economic relations, covering production and non-production sphere.

Economic relations are the relations, which come in men and actors (firms, households) in the economy.

Economic relations include industrial, organizational, economic and socio-economic relations of society.

Regardless of the type of economic relations, it is always necessary to solve three common economic problems: 1. What to produce? 2. How to produce? 3. For whom to produce?

 

Methods of economic theory: the Dialectical method is to identify the causal relationships of phenomena and to reveal the driving forces of society through analysis and synthesis.

Comparative analysis - method of scientific cognition, involving the mapping of the investigated phenomena with the phenomena studied earlier, in order to identify common or different features between them.

Method of scientific abstraction - allows you to explore honor of the subject, not taking into account other components that allows to select all significant, sustainable, and does not take into account random and inconsequential. In the abstraction derived economic categories, acting as the theoretical expression of the real sides of the economy (income, price, product, money, salary). In aggregate economic categories form the conceptual framework.

The rationalistic method involves the analysis of objective reality in constant dynamics, including analysis of internal relations, laws of production, distribution, exchange and consumption.

Positive method involves the creation of a certain philosophy of economic science, the formulation of knowledge about the economy, its categories and laws of development on the basis of the description and systematization of the real facts, experience, market observations, etc.

Regulatory method involves the analysis of practical human activity, based on the principles of maximum efficiency.

Method of induction-deduction, analysis-synthesis.

The historical method is a method of scientific cognition, involving the study of economic phenomena and processes inherent in the sequence of historical development.

The logical method is a method of scientific cognition, involving a comprehensive and in-depth study of cause-effect relationships established between the studied phenomena.

The method of images the method of scientific cognition, involving the construction of graphs (charts, histograms, line graphs, and so on), images of criteria and indicators of the investigated phenomena with the help of geometrical signs and conditionally artistic figures.

 

The main directions of development of economic theory:

1. Mercantilist (17th century) According to the theory of mercantilism, the main form of wealth is money in the form of gold and silver. Source of this wealth – the sphere of circulation of money. The state should actively intervene in the economy through a policy of protectionism.

2. Physiocracy (V. 18) According to the theory of physiocrats source of wealth is production, limited agriculture. Industry it is a barren field, as only recycles the products of nature and agriculture. Artisans, the army too is barren class.

3. Classical school (17 – 19th century) According to this school, the source of wealth is production at all. The condition for efficient production – free competitive market economy. The state should not interfere in the economy.

4. Marxism (from the middle. 19.) the Source of wealth is labor. Capital is the cost of generating surplus value through the exploitation of labor of the employees. Need centralised control of production based on public ownership of the means of production.

5. According to the neoclassical school (late 19th century) private market system is capable of self-regulation. Government intervention is limited to providing an enabling environment (legal, external and internal).

6. Keynesianism (with the 30-ies of XX century) the Market mechanism is not able to provide socio-economic stability of the society. The government should actively regulate the economy and social sphere.

7. Monetarism (with the 70-ies of XX century) the Market has great potential for self-regulation. Should the government influence the economy only in the event of a crisis, and only through the monetary instruments.

Levels of economic studies

Microeconomics studies individual economic units and their population (households, firms, individual markets (industry), utility-pricing and volumes of production of specific goods, allocation of resources)

Mesoeconomics studies the regional-territorial population of economic units as an element of the national economy (regional economy, municipal economy, its structure, the economic growth of the regional economy)

Macroeconomics studies the national economic system as a whole (economy, public sector Economics, aggregate demand and aggregate supply, aggregate production and income, economic growth, inflation, employment) aggregates - a synthetic measure of uniting in one common a number of specific indicators.

Megaeconomic examines the global economic system as a whole (the world economy, the international division of labour, global resource potential, world markets of goods and services-capital workforce, world trade, international monetary system).