Basic economic theory

Author: Liu Changlong
Publisher:
Publish Date: 2002-08-01
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(1) The Arrival of the Agricultural Era
The agricultural economy era, from the Neolithic Age to the pre-industrial revolution, was a primary stage of human productivity development, dominated by agricultural production. Humans gradually gained an understanding of plant growth patterns through food gathering, accumulating initial experience and mastering agricultural cultivation techniques. This marked a gradual transition from foraging and hunting to primitive agriculture. The agricultural economy was based on the recognition and understanding of natural laws, altering the relationship between humans and nature. It shifted humans from a passive, dependent position reliant on natural bounty to an active role of utilizing and transforming nature, capable of producing material wealth through their own efforts. The agricultural economy era significantly advanced the history of human society, representing a major liberation in productivity development. The shift from foraging and hunting to the agricultural and handicraft era greatly transformed human social life. First, agricultural production provided a more stable and reliable food source, enabling humans to settle in long-term communities. Second, agriculture provided the material foundation for animal husbandry, promoting its development while also advancing household industries such as pottery, leatherworking, and textiles. Third, with settled lives, the population grew rapidly, opening a new chapter in the development of human society. During this stage, while the relationship between humans and nature underwent certain changes, this transformation was merely the beginning, and human society had not completely escaped the dependence on weather. Tools evolved from stone, bronze, to iron. The fundamental difference between the Neolithic and Paleolithic eras was the emergence of polished stone tools. These tools were more accurate, purposeful, and sharp, enhancing efficiency and driving productivity development. During the Stone Age, humans discovered metal ores. Copper ore, unlike stone, had better malleability. After mastering the use of fire, humans discovered the secret of smelting copper at high temperatures. In the later stages of the Neolithic era, people began to process copper, gradually transitioning human society into the Bronze Age. The use of bronze promoted the development of agricultural tools, expanding beyond stone axes and plows to include hoes, shovels, hoes, and plows, with corresponding improvements in farming techniques. During the Bronze Age, humans discovered iron. However, due to its high melting point, iron could only be smelted and used with advanced metallurgical techniques. The use of iron greatly expanded arable land and increased agricultural labor productivity. It not only brought a qualitative change in tool materials, making them harder and sharper, but also made tool combinations more complex. Although labor tools in the agricultural economy era continuously evolved, they remained manual tools.
(3) The Agricultural Economy as Labor Economy
The resource development in the agricultural economy era primarily relied on labor, supplemented by animal power, and sometimes aided by wind and water power. Therefore, the development of the agricultural economy depended largely on the ownership and use of labor resources. At that time, humans had limited ability to develop natural resources, and most resources remained unexplored, with no shortage of resources. Labor became the main object of competition, as having labor meant the ability to develop natural resources and acquire wealth. The purpose of ancient wars was to plunder labor, and the long history of slave trading in Western developed countries stemmed from this reason. The development of the agricultural economy also brought changes in economic structure. Early agriculture was limited to grain cultivation. As humans' understanding of natural laws improved and planting experience accumulated, the variety of agricultural crops increased and expanded, further extending into forestry, animal husbandry, sideline industries, and fishing. Simultaneously, with changes in the internal structure of agriculture, social division of labor also developed, giving rise to new production sectors such as iron smelting, salt boiling, papermaking, shipbuilding, silk reeling, textiles, and construction, forming an economic system centered on agriculture that included many sectors of the national economy. During the agricultural economy era, science and technology developed to a certain extent, in addition to mastering a large number of agricultural production techniques, there emerged rich content in Arab astronomy, mathematics, and medicine, as well as China's four great inventions— the compass, paper, gunpowder, and printing. These were all achievements of science and technology during the agricultural economy era. However, overall, the technical level was still relatively low, science was not yet advanced, education was limited, and the majority were illiterate. Talents were largely fixed in one place, making it difficult for them to move or contribute effectively. Therefore, while science and technology had some impact on productivity development, they had not yet become a significant factor in productivity development. In summary, the productivity of the agricultural economy era was manual productivity, with manual tools becoming increasingly refined, laying the foundation for the transformation into machine production. People were primarily engaged in industry—agriculture, supplemented by handicrafts. Science and technology developed to a certain extent, though not yet a factor in productivity development, they prepared the conditions for the emergence of the modern scientific and technological system.
(1) The Concept of a Market Economy
A market economy is an economic operation model that allocates social resources based on the market.
1. The Market Economy as a Form of Resource Allocation
Resources refer to the production factors used to produce goods that meet people's material and cultural needs. Here, resources refer to economic resources that humans can grasp and utilize. There are two types: one is material wealth directly obtained from nature for production and life, and the other is resources obtained through human reproduction activities. Resources can be divided into tangible and intangible resources. Tangible resources include machines, equipment, raw materials, energy, capital, and labor. These resources have physical and geometric forms, are tangible "hardware," and are essential for business operations, measurable numerically. Intangible resources include reputation, image, brands, patents, etc. These resources are intangible and lack physical and geometric forms, being "software." They must rely on tangible resources to realize their utility, and their impact is long-lasting but difficult to quantify. Resource allocation refers to the selection of economic resources among various possible production uses, meaning people allocate limited economic resources reasonably to different regions, production units, and sectors according to their needs. Resources need to be allocated because: (1) Every society faces three fundamental economic questions: what to produce, how much to produce, how to produce, and for whom to produce. Solving these questions requires rational resource allocation. (2) Due to differences in natural conditions, economic development levels, economic structures, and historical and cultural traditions, the quantity and composition of resources vary across regions. This necessitates the rational flow of resources to achieve optimal allocation. (3) People's needs are constantly changing, and methods of production and raw materials are also evolving, requiring continuous changes in resource allocation to achieve high coordination. The purpose of resource allocation has two aspects: first, to allocate scarce resources to the most efficient producers and operators to save costs, accelerate turnover, and achieve high efficiency; second, to combine scarce resources with needed products to optimize structure and meet social needs, achieving the best benefits. The optimization of resource allocation is mainly determined by the method of resource allocation. The method of resource allocation in human society has developed into two stages: one stage is before the feudal society, where the natural economy dominated, and resource allocation was closed within a narrow scope. For example, in ancient primitive communities, medieval manors, or small-scale family economies, resources were very limited, and chiefs, manorial lords, or heads of families could clearly understand and manage resources, allocating them directly. The other stage began in the late feudal society and continues to the present, where the commodity economy dominates, and resource allocation is carried out across the entire society, representing a socialized allocation. At this stage, there are two methods of allocation: one is through planning, and the other is through the market, the former being called a planned economy and the latter a market economy. It can be seen that both planned and market economies are forms of allocating social resources.
2. The Market Economy to Make the Market Play a Foundational Role in Resource Allocation
Resource allocation in a market economy is based on the market, where the foundational role primarily manifests in three aspects: (1) Resource allocation is guided by the market. Market guidance mainly refers to information guidance and interest guidance. (2) Economic operations are centered around the market. In a market economy system, the market is the hub of economic operations, with all economic activities revolving around it. (3) Economic regulation is led by market mechanisms. In a market economy, economic regulation employs various mechanisms, including market mechanisms, planning mechanisms, and administrative mechanisms. However, the overall economic regulation is dominated by market mechanisms.
(2) The Content of a Market Economy
The content of a market economy includes: the subject system, the object system, the macroeconomic control system, the social security system, and the legal system.
1. The Market Economy Subject System
Market economy subjects are the parties engaged in economic activities in the market economy, including natural persons and enterprises. The theoretical basis for natural persons as market economy subjects lies in the fact that labor must be a commodity in a market economy, which is an objective need of large-scale social production. In large-scale social production, laborers' work must be separated from the production materials they possess, making labor a commodity. Moreover, this commodity must be owned by individuals, determined by the characteristics of labor as a commodity, i.e., the value of labor as a commodity must exist in a living human body. It cannot be sold as an ownership but only as a right of use. Enterprises become market economy subjects when they become legally independent entities with autonomous operations and self-reliant liabilities. Enterprises are units of economic activities, i.e., units of production factors. In a market economy, enterprises are the subjects of commodity production and exchange.
2. The Market Economy Object System
The market economy object system refers to the market system. Narrowly defined, the market system mainly refers to the market system divided by transaction objects. For example, consumer goods markets, production material markets, financial markets, labor markets, technology markets, information markets, real estate markets, and gold markets. Broadly defined, the market system includes not only the market system divided by transaction objects but also the market systems divided by transaction venues, transaction methods, and transaction rules.
3. The Macroeconomic Control System
Macroeconomic control is an objective requirement of large-scale social production; it is necessary for the development of the market economy; and it meets the needs of diversified economic structures. The macroeconomic control system includes the macroeconomic decision-making system, the macroeconomic information system, the macroeconomic control system, and the macroeconomic supervision system. The main task of macroeconomic control is to maintain the balance between aggregate supply and aggregate demand, ensure price stability, achieve full employment, maintain a reasonable growth rate of the economy, optimize the economic structure, ensure fair income distribution, protect resources and the environment, and maintain balance in international payments. The means of macroeconomic control include planning, administrative, economic, and legal measures. Among these, economic and legal measures are the main means.
4. The Social Security System
The social security system is a life support system granted to members of society by the state in the form of laws, policies, and regulations. It serves to stabilize society, regulate the economy, and ensure the normal operation of the market economy. The content of the social security system includes social insurance, social welfare, and social assistance, with social insurance being the basic component, mainly including old-age insurance, medical insurance, and unemployment insurance.
5. The Establishment of the Legal System
The legal system is a system that ensures the normal, safe, and orderly operation of the market economy through the state's laws and regulations. Its main content includes laws and regulations that regulate economic subjects, laws and regulations that regulate transaction behaviors, laws and regulations that regulate government control behaviors, and laws and regulations that protect consumer rights and interests.