Production resources and their reward

The scheme of economic circulation (circulation of product and income) is a model that allows you to see the main directions of material and cash flows in the economy, to show the relationship between economic agents and markets.

There are two main types of economic agents: households (families) and firms. The former own all the production resources of society, the latter use them in the production process. Resources are extremely diverse, but they can be combined into groups called . There are four such factors: labor, capital, Natural resources, entrepreneurship.

Labor - it is an intellectual or physical activity of a person carried out in the process of production.

Capital is a means of production created by people. These include buildings, structures, machine tools, machines, equipment, vehicles, stocks of raw materials, materials and semi-finished products, etc. It is necessary to distinguish between physical capital and financial capital (money invested in a business).

Natural resources usually pass under the code name "land", but, in essence, here we are talking about all natural resources that are not the result of human labor (land, forests, subsoil, water).

Entrepreneurship - it's a special kind labor activity aimed at coordinating the use of other factors. Distinctive feature Entrepreneurship is risk taking, since entrepreneurial income is by no means guaranteed.

When the owners of these four factors unite, a firm is born. Firm - this is an association of owners of production resources for joint production activities.

The four factors of production correspond to four types of their remuneration:

• remuneration is called wages;
• capital reward is called percentage;
• land reward is called rent;
• entrepreneurial reward is called profit.

A very important circumstance follows from the latter: in contrast to ordinary consciousness, economic theory interprets normal profit not as a surplus of revenue over costs, arising from no one knows where, but as a necessary reward for special entrepreneurial labor. So the normal profit is part of the economic cost.

Schemes of economic circulation

They sell their own factors of production to firms through resource markets. Firms turn these inputs into finished products—goods that they then sell to households in product markets. The circle is closed. This is the "material flow" within the framework of the economic circulation model.

In the opposite direction is the cash flow. When firms buy factors of production from households, they pay them money, which is household income in the form of wages, interest, rents, and profits. Households spend this money on commodity markets, buying goods and services they need from firms. The second round is completed.

So, in the economy, two rivers - resource-commodity and money - always flow towards each other. All this is shown schematically in Fig. one.

This scheme simplifies reality, since it assumes that households spend all their income on current consumption. In fact, people usually save a portion of their income.

Rice. one. economic circuit

This can be done in different ways. But for a market economy, a situation is typical when people buy shares of enterprises with their savings or place savings in banks, which then issue loans to firms. Both stock exchanges and banks are financial market institutions. Thus, through the financial markets, household savings get to firms as capital investments or investments. Firms, in turn, use these funds to increase capital - the purchase of machine tools, machinery, equipment, and so on. As always, one stream is met by another. In this case, firms pay households a percentage for using their money (Figure 2).

Rice. 2. Economic circuit with the participation of financial markets

An important conclusion follows from the above: investment is impossible without household savings. Investments, in turn, being directed to the acquisition of new capital, are an indispensable condition for long-term economic growth. The higher, therefore, the share of savings in household income, the higher, ceteris paribus, and the growth rate of the economy of a given country.

This is clearly illustrated by the example of modern China, where a very high share of savings in national income leads to significant investment, which, in turn, leads to rapid economic growth.

It also happens, however, that the share of savings in household income is relatively small, while investment in the country and its economy grows quite quickly. This is possible if a country attracts the savings of the whole world coming from abroad. On fig. 2 we see that a country's financial markets can receive both its domestic and foreign savings.

The USA can be an example. Good investment climate in the country, the confidence of foreign investors in the American economy attracted financial capital from all over the world until the financial crisis that began in 2007. Significant foreign investment in the American economy has stimulated its growth.

The state plays an important role in the economy. Specifically, its functions will be discussed in the next topic. Now it is only necessary to characterize the main flows in the economic cycle, which the state diverts to itself (Fig. 3).

The main source of government revenues are taxes collected from households and firms. Some of these taxes are returned to families and firms in the form of various benefits, subsidies, and so on. The difference is the so-called net taxes, the flows of which are fixed on the diagram.

Rice. 3. Economic circulation with the participation of the state

Having collected net taxes, the state purchases goods and resources necessary for the implementation of its activities in the relevant markets (see flows in Fig. 3). For example, the state hires a policeman and buys a patrol car for him.

With the help of purchased goods and resources, the state provides services to both households and firms. Examples of such services are national defense, law enforcement, basic science, standards development in various fields, etc. The flows of these services are also shown in the diagram.

Often government spending is greater than revenue, i.e. formed . Once taxes and other revenues have been approved, the only way to cover the deficit is through loans. At the same time, there are two sources of borrowing: loans from the Central Bank and loans in financial markets that accumulate the savings of households in this country and abroad.

Borrowing from the Central Bank means additional money supply and thus leads to inflation. When borrowing in the financial markets, additional emission may not occur when the savings of the households of a given country are directed to the purchase of government bonds (see Fig. 3) and the money temporarily changes hands until they are redeemed. Therefore, this source of deficit financing is called non-inflationary.

Nevertheless, this method of covering the budget deficit has another very negative consequence - crowding out effect. Its essence is that the state, trying to attract financial resources to cover the deficit, increases interest rate on loans. As a result, many firms find themselves unable to borrow at the new rates; remain without investment and cannot purchase new equipment. Government spending is thus crowding out private investment.

Figuratively, this picture can be represented as follows. Rivers of household savings flow into the fields of corporate investment. Suddenly, a dam and a diversion channel appear on their way, where the water basically goes, and pitiful drops fall on the investment fields. In the long run, this slows down economic growth. The only way to improve the situation with investments is to attract financial capital from abroad.

I. ECONOMIC THEORY

1. The structure of needs. Limited resources. economic circuit

Economics primarily studies economic needs and ways to meet them.

Economic Needs – it is the lack of something necessary for the maintenance and development of the individual, the firm and society as a whole.

Exactly economic needs act as an internal stimulus for active human activity. Needs are divided into primary, satisfying the vital needs of a person (food, clothing, etc.), and secondary, which include all other needs (for example, leisure needs: cinema, theater, sports, etc.).

Means that satisfy needs are called benefits.

Some of them are available in almost unlimited quantities (for example, air), others - in a limited amount. The latter are called economic goods. They are made up of things and services.

Economic goods are divided into long-term, involving reusable use (car, book, electrical appliances, videos, etc.), and short-term, disappearing in the process of one-time consumption (bread, meat, drinks, matches, etc.). Among the benefits, there are interchangeable (substitutes) and complementary (complimentary) goods. Substitutes include not only many consumer goods and production resources, but also transport services (train - plane - car), leisure activities (cinema - theater - circus), etc. Examples of complementary goods are a table and a chair, a car and gasoline, a pen and paper. Economic benefits can also be divided into present and future, direct (consumer) and indirect (production).

Economic resources (or factors of production) are the elements used to produce economic goods. The most important of them in modern society are land, labor, capital (including its organization), entrepreneurial ability and information. . Entrepreneurial ability is usually understood as a special type of human resource, which consists in the ability to most effectively use all other factors of production.

Economic goods do not move by themselves. They act as a means of communication between economic agents. Economic agents- subjects of economic relations involved in the production, distribution, exchange and consumption of economic goods. The main economic agents are individuals (households), firms, the state and its subdivisions. In turn, among the firms, first of all, individual business enterprises, partnership enterprises and corporations are distinguished. Modern economic theory proceeds from the premise of the rational behavior of agents. This means that the goal is to maximize results for a given cost or minimize costs for a given result. Individuals strive to maximize the satisfaction of needs at given costs, the state - to the highest growth public welfare with a certain budget. For example, trade unions also act as economic agents, the purpose of which is to increase wages and improve the social conditions of life of their members, the means is the struggle for favorable conditions for concluding collective agreements.

In modern theories developing the principles classical liberalism, the only real economic agent is the individual. All other agents are regarded as derivative forms of it: firms as legal fictions, and the state as an agency for the specification and protection of property rights.

Economic agents communicate with each other with the help of economic goods. Their movement forms a kind of circulation.

economic circuit- this is a circular movement of real economic benefits, accompanied by a counter flow of cash income and expenses.

The main subjects of the market economy are households and firms. Households present demand for consumer goods and services, being at the same time suppliers of economic resources. Firms demand resources by offering consumer goods and services. The behavior of the main economic agents can be expressed by the circulation of supply and demand (Fig. 1.1).

For all the conventionality of the circuit scheme, it reflects the main thing - in a developed market economy there is a constant interaction of supply and demand: demand creates supply, and supply develops demand.

Rice. 1.1. The cycle of supply and demand

The cycle of supply and demand can be specified taking into account the movement of resources, consumer goods and incomes. Household demand is expressed in terms of expenditures made in the markets for consumer goods and services. The sale of these goods and services is the revenue of firms. Buying the resources needed to do this means a cost to the firm. Households, supplying the necessary resources (labor, land, capital, entrepreneurial ability), receive cash income (wages, rent, interest, profit). Thus, the real flow of economic benefits is supplemented by a counter cash flow of income and expenses (Fig. 1.2).

Rice. 1.2. Market circulation of goods and income

Why and how does the circular movement of goods take place?

All goods created by people continuously make a cyclical (circular) movement. Such a movement must be non-stop in order to constantly support people's lives. It is even difficult to imagine what catastrophes will occur in society if the circuit in question stops even for a few weeks.

What is the cycle of useful products?

In its simplest form, the movement of economic goods can be depicted as an inextricable chain consisting of four links (Fig. 1.3).

Rice. 1.3.

Let us consider the cycle of created goods on specific example peasant economy. The producer first grows, for example, vegetables. Then he distributes them: he keeps some for his family, the rest goes for sale. In the market, surplus vegetables are exchanged for products needed in the household (for example, meat, shoes). Finally, material goods reach the final destination - personal consumption.

It may seem that the circulation of economic goods forms a vicious circle. In this case, the life of people is firmly delayed at an unchanged level of their needs. But people are decisively different from the animal world in this respect. Animals are characterized by the desire to satisfy only natural biological needs, humans do not have such a restriction.

Under favorable economic and other conditions, two tendencies for the rise of needs are manifested: towards unlimited qualitative and quantitative changes - in the vertical and horizontal directions.

Rising Needs Vertically signifies a transition from a comparatively low level to a higher one. Figure 1.4 illustrates how, for example, in the 1920s–1990s. at short intervals, motorists' assessments of the quality and purpose of cars changed significantly.

Rice. 1.4.

Raise needs horizontally It occurs when an increasing number of people in a country enjoy new and socially familiar benefits.

Such a change in the needs and consumption of the population of Russia can be judged, in particular, according to Table. 1.3.

Table 1.3. Availability of durable items among the population of Russia, pcs. per 100 families

The rise of needs vertically and horizontally exacerbates the contradiction between what people would like to have and what production gives them. Only production can resolve this contradiction.

Who and what sets production in motion?

Production has creative possibilities due to its factors (lat. factor- producing).

The first factor is human. It is people with the necessary knowledge and skills that are the primary creative force of production.

Work in production, it is an expedient and useful human activity. In the course of it, people transform the objects and energy of nature, adapting them to meet their needs. True, we are not talking about a simple expenditure of physical, muscular strength of a person. An exceptionally important role of man in the economy is scientific, technical and intellectual creativity.

Labor directs the movement of material elements of production (means of production).

The second factor ( real) – means of labor. These include those material things with the help of which people create wealth.

The composition of the means of labor includes natural natural resources (for example, waterfalls used for economic purposes). The main place here is occupied by technique- artificial, man-made means of labor. In turn, they include tools(tools, machines, equipment, devices chemical production etc.), thanks to which the original natural substance is converted into useful benefits, as well as general material working conditions(industrial buildings, canals, roads, etc.).

The third factor ( real) – subject of labor. This is a thing or a set of things that a person modifies with the help of means of labor. Objects of labor are divided into natural matter, to which labor was not applied (for example, a coal seam in a mine, ore in a mine), and raw materials (raw materials) that have undergone the impact of human labor (coal and ore beaten off from the seam, sent for further processing). ).

The structure of production factors is clearly shown in fig. 1.5.

Rice. 1.5.

All factors are linked with each other. technology- the method of manufacturing products.

Depending on the degree of impact on the improvement of production, it is important to distinguish between two types of factors:

• traditional (from lat. traditions- transmission) - historically developed and transmitted from generation to generation customs, rules of conduct;
• progressive (from lat. progressus- moving forward) - development from the lower to the higher, more perfect.

What kind of factors are characteristic of the economy?

Of the 100 centuries of economic history of mankind, 95 centuries fall on the use of traditional factors of production. Perhaps this should not be surprising. After all, in this historical era production workers for the first time began to manually use the simplest tools.

But from the XIV-XVI centuries. with the broad development of private enterprise and the use of the labor of legally free workers, a need and opportunity arose for accelerating and updating production. Progressive factors of production prevailed. There was such additional chain economic dependencies: the rise of needs - the qualitative renewal of production technology - the increasing use of achievements science to improve the quality of production factors.

Traditional factors make it difficult to improve the economy. Only scientific and technological progress causes a qualitative renewal of the economy and raises the standard of living of people.

It can be assumed that thanks to scientific and technological achievements, it is possible to completely overcome the gap between production and increased needs. Successes in the improvement of production always have limits, depending on the stage of development of science and technology reached. However, such successes accelerate the further growth of the needs of society. The transition to the spiral movement of elevated needs and production striving to satisfy them takes place on new stage economic development.

Resources - everything that is used in the production of goods and services. Economic resources is a type of resources necessary for the production of goods - goods and services.

There are the following types of economic resources:

1) entrepreneurial potential. This is the ability of the population to organize the production of goods in various forms;

2) knowledge. These are specific scientific and technical developments that allow organizing the production and consumption of goods at a higher level than the previous one;

3) natural resources. These are specific minerals, for example, land, subsoil, as well as climatic and geographical position countries;

4) human resources, labor resources. This is a specific number of the country's population, distinguished by certain qualitative indicators - education, culture, professionalism. Together, human resources are the most important economic resource, since without it it is impossible to imagine the normal functioning of the national economy; people with their ability to produce

5) financial resources-capital. This is the capital represented by specific in cash available in national economy(real capital).

Factor income are primary income. They are formed from the sale of factors of production (capital, labor, land) and in the process of their use. Factor incomes appear in the following forms: as wages - this is a remuneration for the work of employees; as rent is the provision of premises, equipment, land for rent; as interest, it is the return on capital; how profit is an assessment of the work of an entrepreneur; dividends, etc.

Factor incomes are divided into two groups:

Income based on labor, i.e. labor origin. These are the incomes of workers and employees (wages), entrepreneurs (profit);

Non-earned income. These include interest on capital; interest on shares, bonds, current accounts; rent for provided property and land for rent, etc.

Economic circulation (circulation of resources and income)- a circular movement of real economic benefits, accompanied by a counter flow of cash receipts and expenditures. It is a schematic representation of the interconnected major market flows in an economy.

The simplest model the economic cycle is shown in the diagram. In this case, the market cycle includes the following blocks: 1) households; 2) firms; 3) resource market; 4) product market.

Households are seen as owners of all resources: labor, capital, land, and entrepreneurial ability. For the resources supplied to the resource market, the household receives monetary income (wages for labor, rent for land, interest on capital, profit for entrepreneurial ability). Cash income is spent on the purchase of goods and services in the product market. Consequently, households shape the demand for products and services and the supply in the resource market.

Firms organize the production of goods and sell them on the product market. The proceeds from sales are used to purchase resources, that is, they are converted into the costs of producing goods. Firms shape the demand for resources and the supply of goods and services in the product market.

In the process of circulation, two flows are formed: 1) counterclockwise - the flow of economic resources; 2) clockwise - the flow of cash income, consumer spending and production costs.

State intervention into a market economy significantly modifies the scheme of circulation.

As one of the participants in the circuit, the state performs following features:
- collects taxes;
- redistributes income through transfer payments;
- pays salaries to employees of the public sector and civil servants;
- buys economic resources and products in the markets;
- acts as a producer of public and quasi-public goods, as well as other goods and services.

Two conclusions are drawn from the analysis of the circuit model.

Conclusion one. Material and cash flows are dynamically developing with sufficient equality of the total income of households, firms and the state to the total volume of production. Aggregate spending increases employment, output, and income. From the income received, the expenses of the participants in the turnover are again financed, returning in the form of income to the owners of the factors of production. The state performs a regulatory function in balancing aggregate demand and aggregate supply.

Second conclusion. Two major macroeconomic sectors of the economy are formed in the circulation system of interconnection of macroeconomic entities: real and financial (monetary). The first is determined by the value of GDP, the second - by the amount of money needed to service domestic trade. Both sectors are in contradictory unity.

There are two polar mechanisms for the distribution of resources: a command (centrally planned) economy, when all decisions on the use of resources and the distribution of products are made by the will of a single central body, and a market economy, when the distribution of resources is carried out by independent decisions and actions of independent economic agents. In a command economy, what, how and for whom to produce is decided by the central government. But what about the market economy? After all, economic agents, when making certain decisions, are guided only by their own interests. If these decisions are not coordinated by society, how can society influence them? However, an attentive reader of the previous three issues of "ESH" has probably already guessed - through prices. And indeed it is.

Let's try to build the simplest model of the functioning of a market economy. Let us first deal with those who are economic agents. These are, of course, producers (firms) and consumers (households). However, they now have a noticeable increase in hassle.

Note that the basis of a market economy is private ownership in general and private ownership of resources in particular. Labor belongs to the bearer of labor, land to the landowner, even the firms themselves, with their productive capacities, ultimately belong to particular people. Thus, each household is the owner of some of the factors of production: almost certainly labor, and sometimes land and capital. Some of these resources are consumed in the households themselves, but what happens to the rest? They are offered by households for sale in the market. Who is the buyer in this market? Of course, firms that demand resources in order to make goods out of them for sale in another market - in the already known market for goods, where the buyers are in turn households. The circle closes (see diagram - figure).

Circulation of money and economic benefits in a market economy.

Consumers sell their resources to buy goods in the market and satisfy their needs. Producers buy resources to sell the goods they produce and make a profit.

Note that through the system of prices in the market of goods and services it is determined what to produce, and in the resource market - how to produce. With the question: for whom to produce? - the situation is somewhat more complicated. In the resource market, only the price of a resource unit is determined, that is, the amount of money that each owner receives for the sale of this unit.

However, the question of the distribution of the resources themselves between households remains outside the framework of the model under consideration (however, as well as economic theory in general).

If you look closely at the diagram, it will become clear that so far we have dealt only with its upper half, that is, with the market for goods. Indeed, in vol. 2 "ESh" we studied the demand of consumers for goods and services, without saying anything about where it comes from and what determines the income of consumers. In issue 3, we considered the behavior of producers in commodity markets, and considered the prices of resources as given from the outside. It is now clear that consumer income and resource prices are determined in the lower half of the scheme, the resource market.

Note that, in principle, we could build the study of microeconomic theory according to a different scheme, dividing the figure into two parts by an imaginary line - not horizontal, as we did, but vertical.

In this case, we would first consider the household as buyer and seller, and then the firm as seller and buyer. We took a different path, considering first the household as the buyer and the firm as the seller. Therefore, it remains for us to study the household as a seller and the firm as a buyer, to which this issue of "ES" will be fully devoted.

After that, in the next, 5th, issue, we will be able to consider the market for all goods and resources at the same time (ie, the entire figure), by analyzing the conditions in which this market is in equilibrium. We will even go a little further and for the first time try to assess how "well" this market works, that is, how it copes with the task of allocating resources and how it answers the three questions we have posed: what? as? for whom?

But this is ahead, but for now we are waiting for the resource market. Generally speaking, studying the market for resources, after the market for goods has already been studied, turns out to be somewhat simple. Firstly, because the same technical apparatus of supply and demand curves is used and, secondly, because assumptions have already been made about what is the driving force and criterion for choosing economic agents. The consumer maximizes his utility, and the producer maximizes his economic profit.

Indeed, the mechanism of supply and demand operates in factor markets in exactly the same way as in commodity markets. However, the very formation of supply and demand in factor markets has some peculiarities. So, on the demand side, the peculiarity here is that the demand for resources is a derivative demand, that is, it is determined by the demand for a product in the production of which this resource is used (see lecture 32).

Features of supply in the markets of land, labor and capital are discussed in lectures 36, 37 and 38, respectively.

Of course, the diagram of the functioning of a market economy shown in the figure is just a very simplified model, which abstracts from many real processes and phenomena. However, this model turns out to be quite useful for the student of economics, just as it is useful for a traveler geographic map, although it does not reflect all the features of the area.

What remains outside the framework of the model under consideration? Let's name the two most important moments for us.

First, in fact, not all used resources are offered to the market by households. Consumers supply firms with only so-called primary resources (for example, labor of a worker, land for the construction of a hotel).

The rest of the inputs (nails, photocopiers, oil tankers, etc.) are supplied to one firm by another. In our model, where all production was aggregated into a single manufacturing sector of the economy, there was no place to reflect this phenomenon.

Note that only the supply in the markets of primary resources has its own specific differences from the supply in the commodity market. In the markets of all other resources, the supply is formed in exactly the same way as in the commodity markets, it’s just that the company offers for sale not a consumer good, but a production resource.

Second, the "pure" market economy that we have modeled does not really exist.

Even the most liberal state regulates the market to some extent, and this especially applies to the resource market.

This is understandable: after all, it is in the resource market that the income of members of society is determined, which means that this issue is at the very center of public interests. That's why state regulation, for example, the labor market (the main source of livelihood for the vast majority of people in any society) in the form of establishing a minimum wage, a maximum working day, etc. - a very common thing even in the most "market" countries.