History of Economic Thought

LECTURE № 2. History of Economic Thought  

The Economic theory studies the history of economic thought, political economy, microeconomics, macroeconomics, international economy, world economics (international business), international economical relations, game theory, entrepreneurship, management, marketing and other economic discipline. 
 

Labyrinth of economic thought. Repeatedly quite differently evaluated the role of government in industrial development, the importance of trade, the market to increase researchers interprets differently the same thing: what, say, wealth and in what ways it is produced?  
The economy - as a subject of study over time varies substantially.  
Mercantilism (from mercante-trader, a merchant) - the first school of economic theory, which originated in England, France, Italy and other countries in the initial period of formation of capitalism. This school has attempted to determine the shape of the wealth of society and ways to increase the basis of the features of the era, when the rapidly expanding international trade. French mercantilist Antuan  de Montchretien in 1615 gave the name of economic theory justifying the policy of the state - political economy (the Greek politick-statecraft), is the science of management of the state economy as a science - political economy, which reveals the role of the state an increase in national wealth.  
 
Classical political economy  

Classical political economy, which has proved in scientific in own failure of mercantilism. Classical political economy theory, exploring all areas of the economy - manufacturing, distribution, exchange and consumption of material goods and services.  
Physiocrats-(Greek physics-nature kratos-power, authority) - the school of political economy, which originated in France in the middle of the XVIII century. And spread to Italy, Britain, Germany and other countries. Founder and head of the Physiocrats in France was Francois Quesnay (1694-1774)  
 
English classical political economy  
Emerged and developed in XVII-XVIII centuries. The founders of this theoretical school were William Petty (1623-1687), Adam Smith (1723-1790) and David Ricardo (1772-1823), who created his theory of the growth of national wealth.  
For the first time the idea that labor is a major source of wealth expressed B. Petty, who was named by Columbus of political economy. He belongs to the famous formula: Mother Nature, the work the father of wealth. Enormous contribution to the classical theory of the direction of Adam Smith made that transformed the political economy of a scientific system, after which she began teaching in higher education. In the main work - "Study on the Nature and Causes of the Wealth of Nations (1776) - he proved  
"Natural order" in economic life. Foundations of this order were found dominance of private property, free competition and free trade, laissez-faire in economic activity.  
 
Economic Doctrine of Karl Marx (1818-1883)  
 
Karl Marx in his main economic work "Capital", to which he devoted 40 years and not had time to complete, largely on new developed classical theory of value and the theory of surplus value. American economist W. Leontief, writes that if someone wants to know what was in effect a profit, salary, and capitalist enterprise, it can get a three-volume "Das Kapital" is more realistic and qualitative information.  
 
Neo-classical direction 
 
Emerged in the last third of the XIX century. as opposed to the school of English classics. First of all within was the result of marginalistical (Fr. Marginal-limit) revolution. This revolution gave rise to the theory of marginal utility and the theory of marginal productivity of labor and capital.  
The classic line of political economy have not studied holistic doctrine of market-based system of farming. This gap in their own way made up for the Austrian school of economics. She founded a professor of the University of Vienna, Karl Menger (1840-1921), Eugene Bohm-Bawerk (1851-1914) and Friedrich von Wieser (1851-1926). They put forward a subjective, psychological concept of value and price of goods, which opposed the labor theory of value. Marginalist revolution continued the founder of the American political economy, John Bates Clark (1847-1938). The concept of marginal utility of consumption goods, he added the theory of marginal productivity of capital and labor, directly contrasted his theory of the classical doctrine of surplus value and exploitation of the working class under capitalism.  
 
Introduction to the theory of limiting values resulted in a mathematical school in economics (English scientist William Jevons, a Swiss economist, M. E. L. Walras, Pareto Italian explorer). That limits are allowed to apply advanced mathematics, operating with such values. With the help of mathematical methods to open many of the functional (quantitative) mathematical relations in production, consumption and market, which allowed to find the best options for the productive use of production capacity with limited resources.  
 
 

3. Lecture. Subject and method of economic theory  

Subject of economic theory  
 
Economics is the science of public opinion, which explores the connections and relations between human beings and human behavior in society.  
In contrast to the sociology and philosophy, economic theory does not consider society as a whole, but only the scope of its economic life, i.e. economic links and relations and economic behavior.  
Specifically, economic theory deals with issues such as organization and regulation of the economy, prices and incomes, unemployment and inflation, poverty and inequality, excessive military spending and pollution and many other issues of social relations in the process of production, distribution, exchange and consumption of vital goods. All these questions are a reflection of the main economic problem - getting enough benefits at minimum production costs.  
The center of attention of scientists - finding ways of effective use of limited resources in the production of material wealth for the maximum satisfaction of human needs. That is the main subject of economic theory.  
 
That examines the economic theory? This question on the subject of science experts does not give a definite answer. For the fourth century economic theorists, split the different directions and at school, often expressed conflicting views on the economy.  
   
4 function of economic theory.  
 
There are four basic functions of economic theory.  
 
1) Cognitive function. Is to explore and explain the economics of society and represent their knowledge in a theoretical form, i.e., generalized and systematized.  
2) The second function can be called a theoretical- methodological or methodological. It appears that economic theory, as already noted, is theoretical and methodological basis for the entire system of economic sciences.  
3) Due to the educational function of economic theory, many people of different professions can master the economic culture.  
4) The practical function (or pragmatic or applied) is to develop specific principles and methods of good housekeeping, as well as the scientific basis of effective government policy.  
 

 
                        Function of economic theory  
 
 
 
│ │ │ │  
Cognitive methodological and practical education  
 
 
 
Methods of economic study  
 
Exploring the economic processes, economic theory applies a number of scientific methods, which use and other social and natural sciences. The most important of these scientific methods for the sphere of the economy is as follows (Figure 2)  
 
Methods of economic research:  
 
• Monitoring and collecting evidence  
• Experiment  
• Simulation  
• The method of scientific abstractions  
• Analysis and Synthesis  
• Systematic approach  
• Induction and Deduction  
• The historical and logical  
• Graphic  
 
Observation, experiment, simulation  
Turning to the first method, we emphasize that, like any science, economic research is an empirical question, that is based on practical experience. This observation suggests, that is the perception of economic processes in their real form, and the collection of facts occurring in reality. For example, thanks to monitoring and collection of factual information can be defined as commodity prices have changed over a given period.  
In contrast, the experiment involves an artificial science experiment when the studied object is placed in specially created and controlled conditions.