The Rationale for Increasing the Theoretical Understanding on the Basic Concepts of Economic Theory

Abstract

The issues dealing with the process of making rational decisions in the production and consumption, an accurate assessment of results and costs in the economy have been the focus of attention for many generations of economists. Assessment of results and costs in the economy are always associated with consideration of the prices for different types of resources. However, some underlying aspects of prices still require further comprehensive consideration. By now, the economic essence of such basic concepts of economic theory as money, price, and utility have not been studied thoroughly, on an appropriate theoretical level. Therefore, one cannot provide a monistic theoretical justification for many economic phenomena such economic processes as forecasting prices for economic resources, optimization of the market economy operation according to the theories of economic welfare, social (collective) choice, general equilibrium, etc. This study aims to increase the theoretical understanding of the basic concepts of economic theory, which would enable to eliminate inconsistencies and contradictions in their interpretation at the fundamental and applied levels of research. The methods of scientific abstraction, system and comparative analysis of mathematical models aiming to establish their possible inconsistency and incompatibility, a logical method, as well as economic and mathematical modeling were used as a methodological basis of the research. Upon conducting a comparative analysis of economic and mathematical models that describe the foundations of the economy, we identified their logical inconsistency and discrepancies with the underlying nature of prices, money and utility. Having analyzed utility functions and the “function of social or aggregated utility†, we proved the need for changing the traditional form of these functions, the need to introduce new phenomena, both individual utility functions and social utility functions that consider the system (emergent) characteristics of the economy. The authors propose considering the system (emergent) characteristics of the economy as: the matrix structure of the economy and the limited cyclic-temporal potential of its lifespan. We believe that the focus on the system (emergent) content characteristic of the nature of prices will allow a more accurate prediction and regulation of their future dynamics, and this will also enable to overcome one of the main contradictions of economic theory between the theoretical basis of consumer choices that are made according to utility values and the practical basis of these choices which are always made according to cost parameters.