Economic theory

Economic theory is a social science that studies the problem of choice in conditions of limited resources to maximize the satisfaction of people's needs. It consists of many schools and directions. The economic theory develops and replenishes with new data with time, therefore its development in the historical perspective is engaged in such a direction as the history of economic doctrines. The main task of the economic theory is to give an explanation of the current events in the economic life with the help of reality models, to reflect in the real economy.

Economic theory consists of a number of sections: the methodology of economics, microeconomics, macroeconomics, international economics, econometrics. A number of scientific schools and areas can be distinguished in modern economic theory: neo-Keynesianism, monetarism, new institutional economic theory, neuroeconomics, Austrian school, new political economy, economics and law.

Subject of economic theory

The subject of the study of economic theory is the behavior or activity of a person, an enterprise, a group of people or a society as a whole, under the conditions of a certain economic system.

The functions of economic theory

1. Theoretical - studies and explains the processes and phenomena of the economic life of society.
2. Worldview - the formation of a systemic, scientific worldview.
3. Critical - on the basis of knowledge of the laws governing economic processes and phenomena, a mechanism of management is developed, its structure and elements actively influencing the subjects of a market economy and determining their expedient behavior.
4. Methodological - serves as the theoretical foundation of the industrial sciences, functional sciences and a number of economic sciences, located at the junction of various branches of knowledge.
5. Prognostic - scientific forecasts of economic development, identifying prospects for social development.

Economics

In the system of economic sciences distinguish the fundamental (general) and applied (private). General: economic theory, history of economic studies, economic statistics, accounting. Private: interdisciplinary (finance, credit, labor administration); sectoral (industrial economics, agricultural economics, trade economics, transport economics); regional (world economy, regional economy, the economy of individual countries). The task of the general sciences is the knowledge of economic laws and the justification of the ways of their effective use. Applied sciences use the results of fundamental research to solve particular and concrete practical problems.

Functions and methods

Methods of economic theory :

1. The method of analysis and synthesis - analysis involves the separation of the object or phenomenon under consideration into separate parts and the determination of the properties of an individual element. With the help of synthesis get a complete picture of the phenomenon as a whole.
2. The method of induction and deduction - when the method of induction is the study of individual facts, principles and the formation of general theoretical concepts based on obtaining results (from the particular to the general). The deduction method involves the study of general principles, laws, when the provisions of the theory are divided into separate phenomena.
3. The system approach method considers a separate phenomenon or process as a system consisting of a certain number of interconnected elements that interact and influence the efficiency of the entire system.
4. The method of mathematical modeling - involves the construction of graphical, formalized models, which in a simplified form characterize individual economic phenomena or processes.
5. The method of scientific abstraction - allows you to exclude from consideration certain irrelevant relationships between subjects of the economy and focus on the consideration of several subjects.

The functions of economic theory :

1. Cognitive - allows you to analyze individual processes of the economy, establishes the relationship between these phenomena, determines the properties of economic entities (financial institutions, enterprises, government, population).
2. Methodological - allows you to define economic theory as the basis for the development of a number of other economic disciplines (marketing, statistics, management, pricing).
3. Educational - allows the citizens to form an economic culture, logic, basic concepts about the market.
4. Practical - recommendations for improving the current economic situation, reducing inflation, increasing the gross national product, etc., developing specific principles and methods for a rational economy.
5. Prognostic - on the basis of the analysis of economic phenomena and processes to develop directions for future development.

Story

Economic theory originated and was formed in the depths of philosophy, and then separated from it in the framework of the general process of differentiation of sciences and the specialization of scientists, caused by the continuous accumulation of knowledge and the impossibility of covering the whole of their array by individual researchers. In the XIX century, economic theory began to be taught in the form of separate courses at law faculties of universities; In the 20th century, special economic faculties, specialized economic higher and secondary specialized educational institutions appeared, they begin to study economics in secondary schools, lyceums, gymnasiums, colleges, a circle of professional economists is formed.

Equivalents of economic theory

In the domestic and foreign literature several synonymous names of economic theory are widely distributed, having different degrees of accuracy and grammatical correctness: “political economy”, “economy”, “economics”, “catallactic”.

The term “political economy” first appeared in 1615 in the title of the book by the French scientist A. de Montchretien, “Treatise of Political Economy”. This name was so successful that it was a generally recognized designation of economics until the beginning of the 20th century (in Russia - until the 21st century). This term at that time fairly accurately reflected the nature of economic research, since the economy in European countries, the state system of which was an absolute monarchy, was very closely connected with politics. Until now, this term can be found in the titles of individual scientific publications (for example, the University of Chicago journal is referred to as the Journal of Political Economy, that is, the Journal of Political Economy). However, in the end, most economists rejected such a designation of economics.

Scientific research, according to Alfred Marshall, should not be based on practical goals that they contribute to, but according to the content of the subject to which they are dedicated. Economics should beware of dealing with many political issues that the practitioner cannot ignore. Therefore, according to Marshall, it is better to denote it by the broad term “economic science” (English economics ) than by the narrower term “political economy”. Subsequently, the term Marshall became the most commonly used in English-language literature. Translating this term with the word "economy" is not quite successful as a designation of science, primarily because of its ambiguity. “Economics” means not only the science of the economy, but also the economy itself: production, trade, factories, etc. Although in English the word “economics” can mean both the economy itself and the science about it.

According to many Russian-speaking authors, the word “economics”, which is still found in many publications in Russian, is incorrect and illiterate due to the same reasons that in Russian-language literature, physics is not transliterated as “physics”, and mathematics - as “mathematics ”, Etc. ^{[1] [2] [3] [4]} .

Main elements

The main elements of economic theory on which any economic theory is based are three types of statements: statements about objectives, statements about restrictions imposed on possibilities, and statements about choice options .

Statements of purpose

The goal is something that people want to achieve. The manager of the company may have the goal of obtaining the greatest possible profit. The consumer may seek to obtain the greatest possible material satisfaction for this income. People in any situation can mix up what they pursue narrowly “economic” goals with a commitment to family values, social responsibility, and so on. Concepts such as “goal”, “intention” and “preference” are essentially interchangeable.

Claims about restrictions

Due to the phenomenon of resource scarcity, the possibilities of people are not unlimited. People are always confronted with restrictions: the things that they need are associated with alternative costs, and many of them may simply be impossible. The statement about the restrictions imposed on the many opportunities available is a key part of any economic theory. Some limitations apply to what is physically possible with the given resources and level of knowledge. Other restrictions take the form not of physical limits, but of alternative cost, often defined in terms of prices.

Statement of Choices

The final component of economic theory is the statement about the most likely choice, which will be made on the basis of certain goals and restrictions imposed on opportunities. For example, the choices that underlie the law of demand consider consumers as people who have the goal of obtaining the greatest possible satisfaction when there are restrictions imposed on their possibilities by the size of their budget, the range of goods offered and the prices of these goods. Based on these goals and restrictions, the law of demand states that, in all likelihood, people will prefer to increase their purchases of a given product when the price for it drops, provided that all other conditions remain the same (all other things being equal).

Economic Theory and Rationality

Although all economic theories contain three types of statements, nevertheless a good theory is more than a simple list of statements. Its elements must form some kind of coordinated whole. Understanding the structure of economic theory would be incomplete without a discussion of the key assumption that serves to link all three elements of the theory into a single whole. The essence of this assumption is that people choose the best way to achieve their goals, based on the limitations that they face, that is, people behave rationally .

Rationality means expedient activity aimed at achieving the goal, based on the specified limitations and available opportunities. The concept of rationality is closely connected with the definition of economic theory, in the format of the problem of choosing the best way to use limited resources to meet human needs. The assertion that some methods of using limited resources are better than others, and that it is precisely these best methods that people, as a rule, tend to choose, accurately reflect the essence of rationality.

The rationality assumption is a tool for shaping the structure of theories relating to how people make choices. Then economists make additions to the specifics of the structure of these theories, clarifying how people behave in different situations. The theory of rational choice is one of the mechanisms for the development of economic theory.