We live in a world whose resources are limited. But you cannot say so about our desires: a person always wants more and better. Therefore, we need a science like economics. Its main goal is to determine how many goods, for whom and in what way to produce. The stages in the development of economic theory are the history of finding the right answer to these three questions. Thus, economics is a science that studies the factors of production, distribution and consumption of goods and services. We’ll talk about this today.
Origin of the term
The word "economy" came to us from ancient Greece. It is a derivative of two concepts and can be literally translated by the term “household” (or rather, the rules of its conduct). Initially, science, which studied the processes of production, distribution and consumption, was called "political economy." Since the end of the 19th century, a shorter term has come into use. He allowed to separate the new science from other political and social disciplines.
Sections of the economy
The focus of the new discipline was the behavior of various agents, the relationships between them, as well as the work of the economic system within the country, and later on a global scale. The subject immediately hints at the need to highlight the sections of micro- and macroeconomics. The first studies the behavior of the basic elements of the system, including individual agents (households, firms, buyers and sellers) and markets, the process and the results of their interaction. Macroeconomics analyzes the system as a whole (aggregate indicators of production, consumption, accumulation and investment) and the factors that influence it, including the underutilization of available resources (labor, capital and land), inflation, economic growth and national policies that affect these areas (monetary, fiscal and others). Before considering the stages of development of economic theory, we will understand what directions exist, as well as what are their differences.
Normative and positive science
In addition to the separation of the economy arising from the subject, there is another. Distinguish between positive and normative theory. The first describes the state of affairs as it is. That is what the first economists, the physiocrats, did. They, unlike Adam Smith, were not at all worried about the issues of proper government. The normative economy seeks and demonstrates how everything should be arranged. It is on its basis that state policy is built.
Economics is also divided into theoretical and practical, rational and behavioral, orthodox and alternative.
The development of the subject of economic theory: stages of development
When it comes to who was the first in the history of mankind to begin to study something, the ancient Greeks usually immediately come to mind. Moreover, the names of three famous thinkers of that time immediately pop up in my head: Socrates, Plato and Aristotle. All due to the fact that the ancient Greek culture is the foundation of our civilization. In fact, in many things the Chinese were the first. But the world found out about their achievements much later. All because the country developed almost completely apart. Therefore, the emergence and stages of development of economic theory are as follows:
- China and India.
- Ancient Greece and Rome.
- Economic thought in the Middle Ages.
- Mercantilism and international trade.
- Preclassical period.
- Physiocrats.
- Classic period.
- Alternative schools.
- Neoclassicists.
- Keynesian economics.
- School of Chicago
- The theory of games, evolution and growth.
- The economy after the Second World War and the era of globalization.
- Directions that emerged after the global financial crisis of 2008.
The sequence of stages in the development of economic theory, presented above, often changed - they overlapped and existed in parallel. Among the distinguished scholars, today you can find neoclassicists and Keynesians.
The views of scholars of antiquity
The first economist to be aware of is Chinese Fan Li. He was an adviser to the king 500 years BC and developed a set of "golden" rules for doing business. We can say that the stages in the development of economic theory began precisely with him. In 350 BC Indian scientist Chanakya wrote arthashastras - a treatise on statehood, military strategy and national economy. In Western countries, economics was not a separate discipline, but part of philosophy right up to the Industrial Revolution. Xenophon was the first to write about housekeeping. Plato in the dialogue "Republic" describes the ideal city-state, ruled by philosophers-kings, there is a specialization and division of labor. He was the first to put forward a credit theory of money, which was later completely discredited by Aristotle. The latter believed that the purchasing power of money completely depends on what it is made of.
All ancient scholars held the position of the need for a free market. Later, in the Middle Ages, mercantilism became the main direction for many years. But the main stages in the development of the economic theory of modernity are associated with the names of scientists who wrote their works after the Industrial Revolution, when this direction has already become obsolete.
The “father” of new science
Adam Smith is widely known for being associated with the origin and main stages of development of economic theory. It is on his theory that all others are based. Smith was inspired by French scholars who shared his hatred of mercantilism. Moreover, they were the first to carry out a methodical study of how the economy works. Smith took many of the ideas of the French physiocrats and described how the national economy should work. The origin and stages of development of economic theory are connected precisely with the transition from a description of the current state of affairs to the designation of necessary changes.
Adam Smith believed that competition between producers was a regulatory factor in the national economy, and governments should not intervene in this system by setting tariffs, taxes or any other means, except when it is necessary to protect market competition. The stages of formation and development of economic theory are largely associated with the pivotal work of the famous scientist "On the nature and causes of the wealth of peoples."
The "sad" theory of Malthus
Smith's works were popular in France and England, but the major thinkers of that time did not support the views of the scientist. Karl Marx and Thomas Malthus rather coldly welcomed the publication of the treatise "On the Wealth of Nations." The latter predicted that population growth would be ahead of product supply. Nevertheless, his opinion turned out to be erroneous, because he could not foresee technological innovations that allowed to produce more using less resources. However, the work of Malthus nevertheless determined a further sequence of stages in the development of economic theory. If earlier research focused on demand, now scientists began to think about limited resources.
Fatal flaws of capitalism and Karl Marx
It is limited resources that are at the center of research by the next scientist. Karl Marx has proclaimed that the means of production are the main component of any economy.Over time, the scientist developed his theory even further, saying that the internal instability inherent in capitalism will necessarily give rise to a war between classes. However, time has shown that Marx underestimated the flexibility of capitalism and the diversity of its forms. Instead of creating separate classes of owners and workers, investment mixed the interests of both, balancing them in a peculiar way.
Despite these inconsistencies in theory, Marx was able to correctly predict one trend: over time, the business becomes larger and more influential. And this is fully consistent with the rules for the development of entrepreneurship in the conditions of market capitalism.
Number language
Leon Valras, a French economist, provided his own language in his book Elements of a Clean Political Economy. The scientist reviewed the stages of development of economic theory briefly and turned to the basics in order to build models that reflect how the national economy works. The general theory of equilibrium originates precisely from his work, as well as the tradition of describing concepts not only verbally, but also mathematically and statistically. Alfred Marshall has taken modeling to a new level. Many of the concepts he proposed are still not fully understood. The most popular of them are economies of scale, marginal utility, the paradigm of real costs.
Keynesian economics
Mixed economic regulation and the need for partial state intervention in economic life is a response to the predictions made by Marx, who did not consider capitalism a self-regulatory system. The latter saw this as a fatal flaw, and John Maynard Keynes - justification for the existence of the government. The views of the scientist formed the basis of the Federal Reserve in the United States. They are a kind of set of rules by which it operates to this day.
Back to the basics: Milton Friedman
The economic policy of the developed countries of the last two decades is connected with the research of one scientist. His name is Milton Friedman. Without studying the achievements of this scientist, it is impossible to fully describe the main stages in the development of economic theory. Friedman agreed with Keynes that government regulatory measures are necessary, but only in transitional periods. When the US economy became more developed, the scientist advocated that the country's leadership weakened unnecessary market control, in particular the antitrust law. Instead of growing due to an increase in gross domestic product, the government, according to Friedman, should try to reduce the consumption of national capital. This will keep it moving in the economy. A large amount of capital allows the national economy to operate without government intervention.
Theory and practice
Economics is a science that deals with issues ranging from how society produces goods to how it consumes them. She is an important part of everyday life. The ideas that guided scientists in this field in their research have changed dramatically throughout history. Modern economic thought is developing in two directions: theoretical and practical.
The first uses math, statistics, and computer modeling to test clean concepts. The latter, in turn, help practicing economists develop the right national policies. Its success or failure becomes the basis for the construction of new computer models. So, gradually, the stages of development of economic theory are replaced by one another, bringing scientific thought to an ever higher level. One of the most famous scientists in this field today is Paul Krugman.
Application of analysis results
The emergence and main stages of the development of economic theory are of interest not only to scientists who work in this area. In addition to the traditional application for the study of production, distribution and consumption, analysis can be applied in business, finance, healthcare and government. Moreover, it can be used in the fight against crime, education, family psychology, jurisprudence, political science, religious studies, the study of social institutions, military affairs and environmental protection.
Consider, for example, one of these industries. Education takes time, effort and cost. Its advantage is future income and experience. The need for education is explained by the fact that the benefits outweigh the costs of obtaining it. You can evaluate this effect for one individual or the entire economy as a whole. Similarly, the methods of analysis developed by scientists in this area can be applied in other social sciences. This trend is called economic imperialism.
