Functions of economic theory

Studying economic phenomena and processes, laws and patterns of their course and development, the mechanism of management, economic theory performs three main functions.

First, it is a cognitive function. It means that economic theory as a science serves people to learn complex, largely interdependent and intertwined processes of economic development, indistinguishable to superficial observation, to the simple eye. Thus, this science facilitates the understanding of complex things and phenomena, makes the deep, invisible understandable and accessible, gives a “key” to the world of economics.

Secondly, economic theory performs a methodological function. Methodology is the doctrine of the methods of cognition. By discovering the laws and laws of general economic processes, economic theory gives all private economic sciences, and there are about 30 of them, general knowledge about the economy, and also equips with such methods that are best served by the solid “nuts” of economic reality. Thus, general economic theory serves as a solid foundation for a multi-storey “building” economic sciences.

Thirdly, economic theory is characterized by a pragmatic, i.e. practical function. This means that economic theory directly serves practice, society, and people. This science reveals to them the most useful and effective directions of their activity, teaches the use of economic methods of influence, the ability to see the ways and resources that have not yet been used, to choose forms and methods of management, to count and evaluate both successes and failures, to see the economic perspective.

The cognitive function consists in the fact that in categories and principles, laws and patterns, economic theory expresses the most essential processes of social development, provides knowledge of the complex world of the economy, the interrelation of production, distribution, exchange and consumption of all elements and structures of the national economy. The focus of economic theory is on man with his needs and interests, attitudes to other members of society, nature, material elements of the productive forces.

The first stage of knowledge of economic theory is the allocation of economic categories. Economic categories are an abstract expression of social-production relations, productive forces and their interrelations. These are the most essential, cause-and-effect essential signs and features of phenomena and processes. The main categories of the market economy are goods, money, economic goods, utility, demand, supply, price, finance, credit, etc.

The highest stage of knowledge of the economy is the expression of its development in economic laws. They establish significant cause-and-effect relationships, interactions of socio-production relations, objectively manifested in the actions of various subjects (employees, sellers and buyers, businessmen and businessmen). Among the laws can be identified the economic laws of the rise of needs, the growth of labor productivity, the laws of supply and demand, the increase in opportunity costs, money circulation, etc.

Economic theories give generalizations of categories, laws, principles, a set of facts and phenomena in a certain system. There are theories of production, consumption, pricing, monopolies, firms, etc.

Knowledge of economic processes and phenomena, the development of the economy with certain targets  (more fully satisfy needs, more efficient use of limited resources, make rational choices) forms economic thinking and economic consciousness, generates a need for special economic education. A conscious economic motive in the behavior of the subjects of socio-production relations turns into a purposeful activity that ensures high efficiency.

Economic theory is of great practical importance. First, it brings into the system, in a certain order, a mass of phenomena and processes of economic life. Secondly, it creates interest in the actions of individuals. Finally, thirdly, it develops principles, rules, forms of management of market economy entities. It substantiates the guidelines of economic activity, effective directions for the use of resources, ways and means of objective impact through economic forms (categories) on the process of meeting needs. Economic theory develops the mechanism of management, its structure and elements that actively affect the subjects of the market economy, determining their expedient behavior. At the same time, the advantages and disadvantages of individual processes, forms, approaches are highlighted.

Economic theory, summarizing the facts of economic development, makes it possible not only to determine the expediency and priority of meeting needs today, but also to develop rational promising tasks and ways to achieve them, to justify economic strategy and economic policy.