Economic Theory as a Basis of Public Policy essay

State regulation of the economy is a system of indirect effects on the behavior of economic agents, and thereby the economy as a whole, through legislation, taxation, customs duties, exchange rates, the use of other tools to limit or, conversely, the motivation of an activity. Economic and social problems that could not be resolved automatically on the base of free competition emerged and sharpened at the stage of the market economy development. There was a need for significant investment, marginal or uneconomic in terms of private capital, but needed to continue the reproduction on a national scale.

Industry and general business crises, mass unemployment, violation of the monetary circulation, increase competition in global markets required active state involvement in economic life. Public economic regulation addresses a variety of tasks, projecting to the fore in a given period. For instance, these tasks are stimulating economic growth, employment regulation, the promotion of progressive changes in the sectoral and regional structure, maintaining the foreign trade balance by increasing exports or containment, or the import of various goods and capital. Specific directions, forms, and scales of public economic policy are determined by the nature and severity of the economic and social problems in this country in a given period.

Thus, exactly the state regulates the economy of all models of national socio-economic systems. Obviously, such a regulation in a modern market economy is in a much smaller scale than in the centrally planned system. Economic regulation is aimed both at achieving all the goals of social development in the economic projections. Of course, at different times, and especially in different countries the structure of the primary goals may be different. The ideal model of economic organization of society is to use the mechanism of state regulation to address various problems.

Adam Smith and Classical Optimism

Economics has been recognized as a science with the emergence of classical political economy. This means that economic thought has ceased to be content with knowledge at the level of common sense, and tried to see the new circumstances which were not available to everyday view. At the same time, the formation of classical economics was a part of another, larger process. In the XVIII century, it was not only a new science, but also it was a kind of the new ideology, the reassessment of the place of economic values ”‹”‹in society. Merchants, farmers, industrialists (the social strata, cultivated by a market economy) have come to the forefront of history, but they were still considered to be “third estate” or people of dubious origin and little jobs in the public mind.

Thinking about Adam Smith and his classical optimism, we can say that a special place in the history of economic thought rightfully belongs exactly to Adam Smith (1723-1790). Smith’s famous book “An Inquiry into the Nature and Causes of the Wealth of Nations which was published in 1776, brought a public recognition to the new science. The Scottish professor of moral philosophy was the first classic of economic science. In the figure of Adam Smith symbolically crossed the two lines in the development of economic thought: as a philosopher and moralist, he absorbed the centuries-old tradition of Aristotle’s ethical understanding of economic phenomena, as an economist – aptly summed up the ideas of his predecessors and contemporaries, and became the founder of a new tradition of economic theory, later called classical school of political economy. Smith’s world-wide recognition as a scientist was largely due to the success of the Smith-moralist, whose idea of ”‹”‹consciousness reconciled with the realities of life.

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