Practice, a Greek term for an undertaking, is opposed to theory since pure theory encompasses no doing apart from itself. A classic example is that of the difference between ‘‘theoretical’’ and ‘‘practical’’ uses the discipline of macroeconomics which involves trying to understand the nature and causes of poverty, malnutrition, hunger, high population, unemployment, low growth, and high income disparity while the practical side of macroeconomics is trying to make people better off, reduce their income disparities and poverty levels, malnutrition, hunger and so on.
Economics and the economy are two sides of the same coin. The relation between economics and the economy is the matter of theory and practice. While the former is a social science concerned chiefly with the way society chooses to employ its resources, which have alternative uses, to produce goods and services for present and future consumption. It is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people (Samuelson, 2005), the latter is a continuous display of a picture of it.
Economy is a system spread over a particular area that discloses the nature and level of diverse economic activities in that area. The essence of economics is scarcity of resources in relation to human wants which are unlimited. Scarcity, choice and decision-making related to allocation of resources to alternative uses are the pivotal parameters of all economic activities (based on the use of scarce resources for the satisfaction of human want) around us.
Economics will come out with economic activities of production, consumption, investment and exchange which relates to product pricing and factor pricing or simply distribution. It is important to note that an economy is the real picture of the economic activities which arise after the follow-up to the economic theories behind the economic activities in certain areas. That is to say, that the economy is economics at a show in a certain area which is well-defined in the present day as a country. The economy, in itself, means nothing. It gets a life as soon as it is headed by the name of a country, a nation, a region, a block, etc. (Singh, 2013).
There is a direct and proportional relationship between the size of an economy and the level of economic activities. Higher the level of economic activities, particularly production activity, which is the creation of utility, larger will be the size of economy of a particular area. Indian economy is an underdeveloped economy characterized by the existence, in greater degree of underutilized manpower on the one hand and of unexploited resources on the other hand. This state of affairs is attributed to low skills and low level of technology and many constraining socio-economic factors which prevent the more dynamic forces in the Indian economy from proclaiming themselves. The Indian economy is very small compared to China and Japan primarily due to relatively low level of economic activities in India.
Economics is a cause, not an end in itself because the end being the welfare of the economy. The modern economists cast-off or discard the trickle-down strategy and emphasize upon the need for strategies designed to meet the needs of the poor directly. In the economics discourse, growth and development discourse in particular, whether on a worldwide level or national level, some call economics as a means while others call it an end in itself. Followers of Amartya Sen call it means and not an end because for them end being the economy rooted with welfare. On the other hand, followers of Jagdish Bhagvati calls it an end in itself. It is however wrong to posit economics and the concerned growth and development indicators as an end in itself. To wish a high growth level is not wrong. To see a dream of growth is not bad but, to dream only about growth is of course bad.
‘‘Man is guided by the stomach. He walks and the stomach goes first and the head afterwards. Have you not seen that? It will take ages for the head to go first’’ (Swami Vivekananda). In the same manner , the economy is guided by economics and its related economic theories and models. The economy and the theories and models go first and the planning and policy making and implementation afterwards. There is no denying the fact that the distinction between underdeveloped and developed economies is somewhat loose. The United Nations group of experts states, ‘‘We have done some difficulty in interpreting the term ‘underdeveloped countries’. We use it to mean countries in which per capita real income is low when compared with the per capita real incomes of the United States of America, Canada, Australia and Western Europe. In this sense, an adequate synonym would be poor countries’’ (United Nations, 1951). When we say underdeveloped economies, we mean economies of the underdeveloped countries and when we say developed economies, we mean economies of the developed countries.
The economic problem is the problem of management of resources. Both underdeveloped and developed economies of the world might be facing some common economic problems and challenges but, at the same time, they might be facing some exceedingly explicit challenges. During the period of development of the subject matter of economics, economists have recommended some fixed number of theories, models, and approaches to solving those economic challenges. It depends upon the choice of the countries as to which theories, models, approaches and set of doctrines they select for solving their economic problems. Even if some countries choice same medicine and tools to fight the problems of the same nature, they might have dissimilar outcomes during a given period of time and vice versa.
What explains this?
Fundamentally, economic theories and models are outlooks of human behavior around their economic activities and as human behavior is a function of many endogenous and exogenous factors, the outcomes and fallouts are likely to display varieties and diversities. The nature, scope and quality of natural resources, the quantity, and quality of human resources, the socio-economic-political setting, the historical circumstantial, the intellectual make-up of the human resource and so on, are some of the factors which affect economy at micro as well as macro level, while carrying out economic activities.
It is very difficult for policy makers, planners and economists to guess and forecast the kind of effect a particular economic policy will have on a particular economic situation. Eventually, execution and distribution scheme are the sine-qua-non of solving economic challenges in a country. For that reason, it is not wrong to say that economics has less range than the economies, and no two economies of the world coincide, although we might classify them in terms of per-capita income levels as developed and developing, and so on. This multiplicity makes nature and scope of economics a highly interesting discipline, and the interface between economics and economy relevant.
Samuelson, P.A and Nordhaus, W.D., Economics, Tata McGraw-Hill Pub. Company Ltd., N. Delhi, 2005, p.4.
United Nations, Measures for the Economic Development of Underdeveloped Countries, 1951, p.3.
Singh, R. Indian Economy, 5e, McGrawHill Education (India) Private Limited, 2013.
The author is a Research Scholar at the Department of Economics, Central University of Kashmir, n Academic Counsellor, IGNOU STUDY CENTRE 1209,S.P. College, Srinagar. She is also an Editor in EPH – International Journal of Business and Management Science & Asian Journal of Managerial Science and was the recipient of IJRULA title awards, 2018 winner (Best Researcher, 2018). She can be reached at: firstname.lastname@example.org