A Critical Analysis of the Institution of Economics

This paper is a critical analysis that investigates the Institution of economics stressing its strengths, weaknesses and problems. It describes the importance of the Institution and its constituents, such as economic system, subsistence economy, conspicuous consumption, market forces, corporate capitalism and corporation.

Beside theoretical concepts the paper gives an example of a corporation, perhaps the biggest one in the world – the Microsoft Corporation.

The Institution of economy exists so much time and though many articles have been written on it, still there are many unclear aspects that are to be examined carefully.

The Institution of Economics

First of all analyzing the institution of economics one should start from the concept of economics and its spheres of study.

So, economics is a notion that means social science (Nelson, 1990, p.203-207). This science generally studies the production, distribution, and use of products and services.

Typically, the science of economics studies measurable variables using both theoretical schemes and empirical analysis. Usually, formal logic is used in questions that need choice or, perhaps, defining economic value, for instance, such as religion, politics, psychology, history and so on (Nelson, 1990, p.203-207).

The Institution of economics consists of two major branches:

• microeconomics (it is engaged in personal agents, for instance, households and businesses);
• macroeconomics (it examines the economy in general).

This division can be argued as it cannot comprise all the factors and notions. An alternate division of it adds positive economics that aims at predicting and explaining economic concept from normative economics. This additional division suggests one choice over another that usually means subjective value thoughts (Nelson, 1990, p.203-207).

The main direction of economic paradigm is an alliance of classical economics and macroeconomics. Key suppositions of the paradigm contain the notion that devices are deficient but desires are unlimited. It is called the economic problem, and the notion that the value of products can be given according to their open-market value (Nelson, 1990, p.203-207).

The Institution of economics is a arguable study that has many aspects that must be decided once and for all. Various schools, for example, socialist economics, associative economics and others, try to find the answer that will explain economic phenomena applying various major concepts (Nelson, 1990, p.203-207). This can be, for instance, pointing out that economics is first of all the science that is busy with exchanges of values, which may either be scarce or may be unlimited.

As it was stated earlier usually economics is divided into two main branches. These are microeconomics and macroeconomics. Now it is necessary to examine these branches in detail.

Macroeconomics as the constituent of economics analyses the economy in general (Holger, 1998, p. 102-108). It supposes the concept that the connection between economic total – national revenue, employment and inflation.

Microeconomics examines the economic conduct of individuals such as businesses, households and individuals. Thus, one should take into consideration that the decision making in the face of product lack and the results of these decisions (Holger, 1998, p.67-73).

Beside the division of economics into two branches, it is divided into several disciplines that do not fit into the macro-micro categories division. These disciplines are the following:

• international economics,
• labor economics,
• welfare economics,
• neuroeconomics,
• information economics,
• resource economics,
• urban economics,
• ecological economics,
• managerial economics,
• environmental economics,
• financial economics,
• mathematical economics,
• development economics,
• industrial organization,
• retail economics,
• war economics,
• public finance,
• agricultural economics,
• transport economics,
• media economics,
• economic history,
• economic anthropology,
• monetary economics,
• economic psychology,
• economic sociology,
• economic archaeology,
• institutional economics,
• forensic economics,
• economic geography.

The next important concept that is to be examined carefully is economic system.

An economic system is a social institution that is busy with the production, distribution and use of products and services in a certain society (Holger, 1998, p.71-78).

The economic system is a system that consists of people and institutions. It deals with the problems of economics, such as the location and lack of resources.

The basic problems of economics require responses to such questions as: what and how to produce and who receives what is made. Economic systems try to solve these problems and answer these questions. Various economic systems respond in a different way (Holger, 1998, p.67-73).

So, every economic system deals with some particular sphere of society though there exists the term “mixed economy” and one could argue about it. This happens because the mixed economy can include elements from various systems. The question that appears here is the following: is it necessary to subdivide systems so that there is one more category – the mixed economy or this is a necessary addition that helps to put everything in order?

So, the most important and general economic systems are the following:

• Market economy, for example, capitalism;
• Mixed economy;
• Planned economy, for example, socialism;
• Traditional economy;
• Participatory economics.

The economic system can be viewed as a part of the social system and equal to the law system, political system, social system, and so on (Holger, 1998, p.85-94).

Subsistence economy

A subsistence economy is an economy in which a group gets all the necessary things of life via self-provisioning. In such a system prosperity is not measured in some form of currency, but it exists in the form of natural resources.

Before the currency appearance, subsistence economies were the major economic system all over the world. The system still exists as the main traditional practice in several societies, for example, the Melanesian people and the Solomon Islands (Holger, 1998, p.67-73). It was also the main source in French Polynesia till French military personnel came there in 1962. After that there was a change to a tourism-based system.

Conspicuous consumption

Conspicuous consumption is a term used to define the consumption of products and services for displaying social status and prosperity. The notion is not applied for compulsive conduct connected with personality disorders, such as compulsive spending.

Corporation

A corporation is a legal organization that exists absolutely separately from the workers. The size of its status and possibilities will be defined by the law of the place of incorporation. The corporation can be defined as following: it is a legal organization that often has the same rights in law to those of a natural person (Holger, 1998, p.90-102). It usually denotes a commercial organization set up according to a governmental framework.

The concept corporation is often applied to refer particularly to business corporations. Corporations may also be organized for political or other purposes (not-for-profit corporations), or as state organizations (public corporations).

Corporate capitalism is a form of capitalism in which economic might and ownership of capital is located in the hands of a small number of influential organizations.

The vivid example of a influential corporation is Microsoft Corporation. It is an international computer technology corporation with 2005 global annual sales of close to $40 billion USD and about 64,000 employees in 85 countries.

Conclusion

The given paper analyzes the Institution of economics stressing its weak and strong points, analyzing its problems and undecided questions. This paper demonstrates the importance of the Institution and its constituents, such as economic system, subsistence economy, conspicuous consumption, market forces, corporate capitalism and corporation.

Besides, having examined theoretical concepts the paper gives an example of a corporation, perhaps the biggest one in the world – the Microsoft Corporation.

Having examined the importance of the Institution and its systems, it is clear that it should continue developing, though used as theoretical basis.

References:

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2. Leiser, Davis & Roland-Levy, Christine & Sevon, Guje (1990). “Introduction,” Journal of Economic Psychology, Elsevier, vol. 11(4), pages 467-468, 12.
3. Matthew J. Slaughter (1995). “The Antebellum Transportation Revolution and Factor-Price Convergence,” NBER Working Papers 5303, National Bureau of Economic Research, Inc.
4. Nelson, Richard R. (1990). “Introduction,” Structural Change and Economic Dynamics, Elsevier, vol. 1(2), pages 203-206, 12.
5. Veblen, Thorstein (1899) Theory of the Leisure Class: An Economic Study in the Evolution of Institutions. New York: Macmillan. 400 pp.
6. John Micklethwait and Adrian Wooldridge, The Company: a Short History of a Revolutionary Idea (New York: Modern Library, 2003).
7. Michael A. Cusumano; Richard W. Selby (1995). Microsoft Secrets: How the World’s Most Powerful Software Company Creates Technology, Shapes Markets and Manages People, Free Press.