Historical differentiation of economic concepts. Nucleation and the basic stages of development of economic sciences.

Nucleation and the basic stages of development of economic sciences.

The subjects of economic theory are relations and ties that appear between people

while production, distribution, exchange and consumption of goods and services. The word economy comes from the Greek word oikonomos, which means “one who manages a household.”

During centuries people were trying to understand economic processes (Aristotle (384-322 BC), Plato, Xenofont etc). Though, the first economic teachings appeared only in XVI AD, and the term “political economy” was firstly used only in XVII AD (A. Montchretien “Treatise on political economy”, 1615). Further history of the science development is a deep research of different sides and laws of economy which is understood as the totality of branches of economy, providing society with necessary goods and services.

Historical differentiation of economic concepts.

In the history of mankind the following teachings can mentioned:

a) Mercantilism (from Italian “merchant”) – XVI-XVII; representatives: W. Stafford, T. Men, A. Montchretien etc. They believed money in the form of gold and silver to be the major wealth of nation and a state and proposed different methods of its attraction to the country.

b) Physiocratism (from Greek “physis” – nature, “cratos”- power. Its founder is F. Canae, XVIII. The research of the question about the origin of a surplus was drawn from the sphere of circulation to the production sphere, agriculture mainly, which was considered to be a producing one; industry was defined as processing a product only, manufactured in agriculture.

c) Classical school of political economy was founded by W. Petty, A. Smith, D. Ricardo (the second half of XVIII – the beginning of XIX). It was based on the theory of labour cost; employees’ labour was defined as the source of income. They researched the mechanism of social capital increase, proved the inadmissibility of a state interference in economy, the necessity of free trade.

d) Marxism (the middle of XIX) was founded by K. Marx and F. Engels. The deepest analysis of capitalism, its main categories (capital, income, salary etc), laws and market mechanisms was done by the representatives of the school.

e) Marginalism (from French “borderline”) – the representatives were: D. Clarc, A. Marshall, E. Bem-Baverk. They stood on position of the refusal of the discussion of social aspects of capitalist economy, so instead of the term “political economy” they started to use more neutral term “economics” (economic theory). It has many trends, but the main idea is capitalism capable of self-control and balance achievement in economy.

f) Keynicians (1930s), its founder was J.M. Keyns. The main idea is the explanation of the necessity of state regulation of economy and the elaboration of its definite forms because a spontaneous market mechanism is not able to solve the problem of cyclic fluctuations and unemployment.

3) Modern economic theories are:

a) Neoclassicismgrounds a statement that the most favorable conditions for economic units domination are the conditions of pure competition (A. Marshall, A. Pigue);

b) Neoliberalismgrounds the necessity of joining the principles of free competition with a state regulation of economy (L. Mises, F. Hayek, A. Muller-Armak etc);

c) Monetarismis one of the directions of neoclassic economic thought that appeared in the mid 50s in XX, the USA. It was founded by the head of Chicago school of political economy M. Fridmen. According to the theory, the main element of market economy is money and that’s why its regulation is to be based on the regulation of money in circulation.

d) Institutionalismis one of the directions of Western economic thought that appeared in the end of XIX – at the beginning of XX; it concentrates mainly on the analysis of the role of institutions in decision-making and in economic activity, their purposes and effectiveness (T. Weblen, D. Commons, W. Hamilton etc). Competition, labour unions, taxes, state monopolies, juridical norms and others are considered to be institutions; economy is considered as a system of relations between subjects of economy, that is formed under the influence of economic and non-economic factors (technologies are one of them).