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Economic theory Lectures for English-Speaking Students

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Ministry of Health of Ukraine

Donetsk National Medical Gorky’s University

Department of Philosophy and Social Sciences and Humanities

V.Alexandrovskaya, V. Belousova, D. Korjova

Economic theory

Lectures for English-Speaking Students

of Higher Educational Institutions

Donetsk 2009

ББК 60.5.73

УДК 316 (075.8)

Economic Theory. Lectures for English-speaking students of higher educational institutions. – Donetsk: Gorky’s Donetsk National Medical University, 2009. - 76 p.


V. Alexandrovskaya, Doctor of Philosophy, Associate Professor of Department of Philosophy, Social Sciences and Humanities of the Donetsk National Medical University

V. Belousova, teacher of Department of Philosophy, Social Sciences and Humanities of the Donetsk National Medical University.

D. Korjova, teacher of Department of Philosophy, Social Sciences and Humanities of the Donetsk National Medical University.

Sciental reviens :

Grebenkov G., Doctor of Philosophy, Professor

Davidov P., Candidate of Philosophy, Associate Professor

Approved at the Academic Council of the Donetsk National Medical University

(Minutes 8, 28th November 2009 )

ББК 60.5.73

УДК 316 (075.8)


Subjects and methods of economic theory.


  1. Development of economic theory as a science.

  2. Subject, methods and functions of economic theory.

  3. Economic system: meaning, material base and its role in economy.

^ 1. Development of economic theory as a science.

1) Definition of economics, its role in economy.

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.

^ 2) Historical differentiation of economic concepts.

In the history of mankind the following teachings can mentioned:

  1. 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.

  2. 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.

  3. 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.

  4. 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.

  5. 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.

  6. 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:

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

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

  3. Monetarism is 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.

  4. Institutionalism is 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).

^ 2. Subject, methods and functions of economic theory.

1) The subject of economic theory are relations and ties that appear between people while production, distribution, exchange and consumption of goods and services.

2) The aim of economic theory is to define laws and essence of economic phenomena.

3) Nature and essence of economic laws.

  1. Nature of economic laws. Economic phenomena and processes are subordinated to the objective laws, which are commonly called economic ones. They are of the objective character, i.e. they don’t depend on human will and consciousness, but at the same time they are not historically eternal, they change with the change of conditions of economic life.

  2. Essence of economic laws. Economic laws express the essence of phenomena and the level of their cognition by a person. They reflect stable, causal relationship between these phenomena or processes. They are typical and variable, that’s why they form a definite system of economic laws that correspond to this or that way of production.

  3. Classification of economic laws:

    • general – the laws, typical of all ways of production of all epochs;

    • special – the ones, typical of the ways of production of the same type;

    • specific – the laws, typical of definite ways of production with definite economic conditions.

  4. Functions of economic laws. The objective nature of economic laws presupposes not only the necessity, but also the possibility of taking into account their demands in economic practice. It allows to elaborate a scientific mechanism of regulation of social production and to use the knowledge of economic laws while decision-making. Thus, the functions of economic laws are:

    • to reflect the objective state of economy;

    • to anticipate the necessity and possibility to use them in economic practice;

    • to promote the elaboration of a scientific mechanism of social production management;

    • to use the knowledge of economic laws while decision-making.

4) Methodological system of economic analysis:

  1. The major method of economic processes cognition is the one of materialistic dialectics. It’s based on the idea of matter primacy while defining the meaning of consciousness. Dialectic al approach means:

    • phenomena are considered not in statics, but from the moment of birth to death;

    • development is considered from the simple to the complicated, from the lowest to the highest;

    • a transition from the concrete to the abstract and again to the concrete is observed while research;

    • contradictions and their elimination are considered to be the moving force of development.

  1. Other methods of economic researches.

    • analysis and synthesis. The cognition of economic phenomena presupposes their analysis – the division of phenomena into elements and this elements research; synthesis is a formulation of conclusions and laws on the basis of analysis;

    • scientific abstraction. It means that it is necessary to abstract from accidental and transient moments and to define typical and constant features;

    • deduction – a theory proof by means of facts;

    • induction – drawing up principles and conclusions from facts.

5) Functions of economic theory:

  1. theoretic - cognitive function is aimed at depicting the essence of economic laws and categories and essential causal relationships of economic phenomena and processes, forms of their expression, their typical inner contradictions, the development of which ensures successive economic progress of society, as well as the mechanism of laws realization;

  2. practical function is aimed at a full explanation of definite ways of economic laws application and overcoming the forms of contradictions that stop the development of economy, thus at formation of a scientific base of economic policy of a state.

  3. ideological function is aimed at the formation of the new type of economic-theoretical thinking of officials of different ranks;

  4. methodological function:

    • serves a base of the use of general scientific and philosophic principles and dialectics categories for most of the economic disciplines as well as for economic theory;

    • grounds fundamental economic categories for these disciplines with the account of historical method;

    • gives the knowledge of the most important means of development and perfection of economic system and as a result of it influences the cognition of ways of development of definite branches of economy.

^ 3. Economic system: essence, material base and role in society.

1. The essence of economic system. Economic relationships function as a definite system that includes objects and subjects of these relationships and different forms of their connection. The economy of every country is a large system, consisting of many different types of activity, and every component of the system can exist only because it is connected to other ones. Economic system is a specially organized system of connections between producers and consumers of goods and services.

^ 2. Properties of economic system. Economic system is in a constant development and possesses definite properties: integrity, organized structure, stability, contradictoriness and mobility.

3. Material base of economic system. Forces of production are the material base of economic system.

  1. Forces of production are the factors that ensure the transformation of natural resources according to human needs, create material and spiritual values and define the increase of productivity of social labour.

  2. The elements of forces of production are means of labour, subjects of labour and people who have experience in production and make means of production and natural forces, used by people (wind, sun, hydro recourses etc) move.

  3. As a result of a constantly renewed process of interaction of all elements of forces of production social forces of production, like cooperation and labour division appear.

^ 4. Place and role of economic system in society.

Integrity, as well as a high level of organization and effectiveness of modern developed economic systems depends on how strong its humanistic, democratic and ecological orientation is.

  1. Humanistic orientation means subordination of economic systems development to greatest moral, cultural and human values of working people.

  2. Democratic orientation much depends on two main factors: on the degree of economic relations democratization (the relations of economic property mainly) and on the degree of employees’ participation in production and property management, their influence on economic mechanism.

  3. Ecological orientation presupposes the formation of such an ecological-economic system that would save nature, promote satisfaction of increasing ecological needs of society (clean air, environmentally safe products etc) and implementation of technologies that wouldn’t damage environment.

^ 5. Types and models of economic systems.

    1. Criteria of economic systems classification. Major characteristic of society types that were passed by mankind in its development is the characteristic from the point of view of property of means of production.

    2. The priority of property criterion is defined by:

    • firstly, by the fact that property is a multisided sociologic category in which many aspects are distinguished; property reflects the whole range of relationships between individuals, classes, states and other subjects;

    • secondly, social and economic progress and stimulus to labour depend on a type of economic system;

    • thirdly, the all-round development of mankind presupposes not only the progress of employees but also the one of employers.

c) According to property criterion, there are three types of economic systems: command, market and mixed.

    • Command economy is characterized by a state form of property of most of enterprises which act according to the directions of a single economic plan. It’s regulated by administrative methods.

    • Market economy is characterized by private property, system of free proprietorship where market system is used. Resources are divided according to the laws of money-commodity relations, economy is connected with high risk and liability is undertaken by the subjects of market.

    • ^ Mixed economy is characterized by a combination of private and state sectors, where a state interferes with economy through its economic functions, but with the account of self-regulating role of the market.

c) Civilizational and formational approaches are distinguished in defining of society types. K. Marx, the author of formational approach, noted three main formations:

    • primary or archaic, to which he referred primeval or Asian way of production;

    • secondary, comprising slave, feudal and capitalist ways of production;

    • communist, including socialism and communism.

Civilizational approach is a conception of the division of history of society into periods; it presupposes historical circulation of different types of society and epochs through definite stages from birth to death. W. Rostow divided history into five stages:

    • traditional society (primitive technique, agriculture, authority of farmers);

    • transitive society (centralized state, proprietorship);

    • the stage of “movement” (industrial revolution and its results);

    • maturity” stage (science-technical revolution, urbanization);

    • the stage of “mass consumption” (defines the sphere of services and production of consumer goods).


      1. Define the subject of economic theory according to the existing conceptions.

      2. Characterize economic laws and categories.

      3. Functions of economic theory as a scientific discipline.

      4. Characterize the economy of Ukraine.


Commodity form of production organization.


      1. Production, its main factors, means of production and society needs.

      2. Subsistence and commodity economy.

      3. Goods and their properties. Laws of commodity output development.

      4. Money, its functions. Law of money circulation, inflation.

^ 1. Production, its main factors, means of production and society needs.

1) Production as a source of life. Food, clothes, footwear dwellings etc. are essential for human life. To adapt natural resources to the satisfaction of needs people must work. That’s why, the basis of life and society development is production.

^ 2) Production is a process of human influence on objects (substances) with the use of natural forces and their adaptation to satisfaction of definite needs.

3) Relations of production. Any production is of social character, as people never work aloof from each other, they are connected in production activity. It means, that people get in contact not only with nature but with others whilst production. These relationships are called economic ones.

^ 4) According to the neoclassic theory main factors of production are labour, land, capital and entrepreneurial abilities.

  1. Labour is a conscious, purposeful human activity, in the process of which people change outer nature, regulate exchange of goods and change their surrounding. In the course of the process people achieve their aim that defines the way and a character of actions and to which they subordinate. This is the fact that distinguishes labour from instinct actions.

    • Objects of labour are natural resources, influenced and transformed by people in the process of labour. They can be of two types: 1) given by nature; 2) the ones that are to be transformed – raw material.

    • Means (instruments) of labour are instruments, used by people while transforming objects of labour.

  1. Land is used as means of labour in agriculture, in extracting industry it is an object of labour.

  2. Capital, existing in a form of money and commodity is an integral part of the process f production.

  3. A person who joins land, capital and labour, undertakes risk for their use acts as an entrepreneur and is a fourth factor of production.

5) Facilities of production and needs of society.

  1. To produce the amount of tangible and intangible goods necessary for society, one should spend a great deal of different resources (natural, human, financial etc.), that are called economic resources.

Economic resources are substances or definite factors of production, used for the production of goods and services. Resources are different and their classifications are different:

    • natural, or the deposits of minerals, that society possesses or natural conditions of life (favorable for agriculture, favorable geographic location);

    • human – with people’s experience, qualification, level of education and entrepreneurial abilities;

    • created and perfected by previous generations for production activity and consumption, i.e. real enterprises, transport systems, housing etc.

    • money, currency in gold, financial etc.

  1. All types of resources that are at mankind’s disposal, resources of definite countries, firms, families are limited in qualitative and in quantitative respect. This is the principle of scarcity of resources. Hummel labour is limited by their number and their ability to work, by working hours etc.

  2. Scarcity of resources provokes scarcity of facilities of production. Facilities of production are ensured by means of the best joining of factors of production, existing choice up to the alternative one. The problem of choice provokes three main questions of the market: “What?”, “How?” and “For who?”. Defining its essence we are guided by market conditions, define the aim, choose means of its achievement and estimate the outcomes of our activity.

  3. The necessity of people to have definite gods and services are called needs. Needs are variable, they can also be classified according different criteria:

    • needs in means of existence – goods, satisfying human bare necessities (food, clothes, dwellings etc.);

    • needs in social and cultural means of life – education, leisure etc.;

    • needs in means of activity – objects for production of goods and services;

    • needs in satisfaction of social-prestigious goods – tourist services, luxuries etc.

e) An increase and a constant change of needs (their structure, quality and quantity) is observed alongside the development of society. During every ten years the quantity of types of goods and services enlargers more than twice at a simultaneous increase of the quantity of consumption of goods. Needs are increasing in quantitative and even more in qualitative respect. This is expressed in the law of the increase of needs.

The increase of needs and their change provoke a stimulus to the production of goods aimed at satisfaction of human needs.
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