Rajasthan Board RBSE Class 9 Social Science Notes Chapter 16 Economy and Economic Management
- Those activities that include, production, consumption, exchange and distribution of goods for their livelihood are called economic activities.
On the basis of material or things required for economy the main economic activities can be divided into:
- Production: It means the conversion of a raw material into finished goods which can be utilized to satisfy needs. In other words, creation of utility is called production.
- Producer: It is a person who produces goods and services to earn profit. For example, farmer.
- Consumption: To satisfy needs directly by consuming goods and services is called consumption. The one who utilises the goods and services to satisfy his needs is called the consumer.
- Exchange: The meaning of exchange is to give self produced goods and services to others to satisfy their needs and taking goods and services produced by others to satisfy own needs. In other words, sale and purchase of goods and services by the consumer and producers in market is called exchange. For example, a consumer purchases wheat and pays for that to satisfy his needs.
- Distribution: To produce goods and services a producer needs some resources or means as land, labour, capital, management and entrepreneur. Mutual cooperation and combination of means help in production. Division of production among means is called distribution. Or in other words distribution of income earned by exchange of goods and services among different means is called distribution.
Non Economic Activities
Activities by inspiring feelings, love, affection, social and religious duties, needs of body, love for nation are called non economic activities. These activities are not done for earning money or any other considerations. For example, caring of children by mother, cooking food for the family etc.
Means of production: Production of goods goes through different steps. To complete these steps many means are required. The amount of production depends upon quantity of means. These means of production can be divided as follow:
- Land: In economics, land does not mean only earth but natural resources, climate,vegetation, mountains, water, mines etc. Land is a unmovable factor of production because it can not be taken from one place to other. It is of different grade according to its fertility or production capacity. In the process of production, tax given to land owner in place of its use is called rent.
- Labour: It means those people who will work to produce goods and services physically and mentally. For example, labour done by housewife is not considered as labour while the same work done by servant is called labour.Labour is a movable means of production. Labour is not always rewarding. The reward got by a labourer against labour is called wage.
- Capital: All the materials and man’s capability which are utilized in production is called capital. A part of capital is kept without use while some is utilised in future. It is one of the factors of production which is earned by man by utilising natural resources. Machine, tools, Industries and transport are example of capital.
- Entrepreneur: In production process, a person who gave momentum to land, capital and labour is called entrepreneur. He produces by utilising means in right proportion. He takes risk for production, hence he is called brave and courageous. Without taking risk production can not be done. He is called as organiser and manager. His reward is that earning which is left after paying cost of production. It is called profit. It is not certain. He can get both profit and loss.
- In every country an individual is engaged in economic activity to earn his livelihood whether a farmer, doctor, labour, Industrialist, teacher, shopkeeper, etc. Performance of different economic activities by different classes of people require an organisation or system. Such system is called Economic Management or in other words a system by which people earn their livelihood is called economic management.
- It is a frame or structure which develops a co-ordination and mutual co-operation among means and producers. It is a continuous process of production, consumption, distribution and exchange. For example, for the production of sugar, producer takes sugarcane from farmer, machines and tools from industries and electricity from energy plants. To send produced sugar from one place to other by rail, truck and ships.
Economic system of a village or town: Study of economic activities of all habitants of a village or town.
Indian Economic system: Study of economic activities of all Indian people.
Types of Economy
In any country control over production, consumption, exchange, distribution, and other economic activities depends upon how much interference of the government is present? What would be the basis of ownership on the factors of production? What would be the objective of conducting economic activities? These are the bases on which economies of the world can be classified. They are:
- Capitalist Economy
- Socialist Economy
- Mixed Economy
Ancient Economic Thought
Fast extraction of natural resources, unlimited use of material and services, unwise consumption, fast industrialization has developed environmental degradation. Increased needs has given birth to degraded human and moral values. These problems have stressed economists to find way of new economy which can be the solution to the ills of capitalist and socialist economy. In such situation Indian economic thinking has given an alternate economic system.
Beside it has shown the way to present economic problems. It is the gist of all those economic thoughts which have important place in ancient Indian scriptures. India’s prosperity of past is available in these scriptures due to which India has been rewarded with the title ‘Vishwa Guru’.
The main concepts related to ancient economic thoughts are as follows:
Economics and economic activities are widely discussed in ancient economics scriptures of India. Economics, politics, religion and moral education were inter linked with each other. The number of scriptures with ancient Economic thoughts is numerous and the field is also very wide. Out of them, main are introduced as follows:
Basic concepts and Rituals of Ancient Indian Economic thinkers
- Integral Individual : Where capitalist economy presents man as economic man who is a machine of earning more and more money while socialist economy considers him as means of earning money. Ancient economic thought present him as integral individual (Ekatma Manav) according to which a man is a integrated form of ‘Mann, Buddhi’ and Atma. A man’s thought of life goes around these four elements, body, mind, soul and conscious. For balanced development of these elements four Purusharthas are mentioned as duties of man by ancient Indian economic thought. They are, Dharma, Artha, Kama and Moksha. It is clear that Indian economic thought not only gives stress on physical development of man but also spiritual and moral development for his’all round development.
- Whole Wisdom: Modern economics give stress on production for maximum profit-earning based on self satisfaction and selfishness while ancient economic thought tells about control of society and morality over economic decisions. Or in other words it should include Public welfare also.
Concept of Control and Co-consumption
Consumption of self earned income is allowed in ancient economic thought.
- Concepts of consumption: Balanced consumption or tolerant or controlled consumption We should consume earned money in minimum and in controlled manner to satisfy one’s need. We should earn only that quantity of money which could satisfy needs of an individual and his family. Consuming more than need is a crime and that fellow should be punished. One should earn honestly. According to Chanakya balanced consumption keeps an individual healthy. It is also given in scriptures what should be consumed and what not. One should consume goods and services as grace of god by keeping public welfare in mind. He should not think he has right over goods and services.
- Co-Consumption: We should consume things by distributing them to others. It should be based on equality and welfare. It is mentioned in Rigveda ‘one who consumes food himself by keeping friend, servant, guest, animals, birds, in starvation is a sinner. While western thought of economy give stress on maximum consumption and satisfaction. On the other hand balanced consumption with laborious earning and distribution is stressed in Indian thought.
- This is mine that is yours is a mean thought while ‘Vasudhev Kutumbkam’ is a high thought. Welfare of all and service to mankind is considered as human religion universally in Indian culture.
- At present when gap between rich and poor is increasing ancient thought of balanced and co-consumption as well as justified distribution can be helpful to establish equality in society and social welfare.
- View in concept of needs: Man’s wants are unlimited and sources of their supply are limited. Hence due to unsatisfied wants, man become unhappy. It is given in kanthopnishad that man’s needs can not be satisfied ever because they are not needs but greed. One should earn with labour so that poverty should not remain in society because poverty can not satisfy the needs and give satisfaction.
Chaturvid Sukh/Four Purusharthas
- Happiness of man’s body, mind and soul depends upon four Purusharths. Dharma, Artha, Kama and Moksha are called Chatushtya Purusharth in Indian Philosophy. They are compared with a river where Artha and Kama are flow and Dharma and Moksha are river banks.
- Dharma has wide meaning. It is a quality related to honest livelihood. It should be adopted in behaviour. Discipline, morals and ethics are bases of good behaviour. They create the discipline and management in society.
- Artha: Happiness and prosperity are result of Dharma. In Vedas prosperity, wealth and property are considered as Artha while according to ancient literature Vidya, Bhoomi, gold, silver, animals, wealth, crops, metals, etc. are considered as Artha.
- Kama: Is a process of world’s continuity. It is the cause of wants and origin of different activities according to Atharv Veda.
- Moksha: Money is a source or means not the goal in life. By keeping one away from desires and leaving ties of karma is Moksha or not taking birth on earth or breaking the cycle of birth and death on earth is called Moksha or Nirvana.
- It involves private ownership of economic activities, private interest, profit motive.
- There is no interference of government in economic activities. It is called market economy and open economy. It originated in between 1760-1820. It is not present in its pure form in any country of the world. Example, U.S.A, Japan, Germany, England, Italy, France, etc.
Main characteristics of capitalist economy:
- Private ownership on property: In this economy factors of production like land, capital, mines, industries, machines etc. are owned by the private owner. They are free to use them. They have sole right to increase, decrease, keep and use property.
- Freedom of choice to consumers: Consumer have sovereignty over economic activities or, in other words, production of goods is done according to purchasing power of the consumers or price mechanism depends upon consumers choice as consumer has top most place in this economic system. Hence is called the king of the market.
- Economic freedom to entrepreneur: What to produce, how to produce, In what quantity to be produced is decided by individual. There is no interference of government in the policy related to production.
- Competition: It improves business skills as there is a competition among sellers and purchasers for selling and purchasing of products to satisfy their needs. Advertisement, Gift giving, Discount in prices etc. are some ways adopted to create competition.
- Self interest and profit motive: Every activity in such system is profit based. Consumption is also done or based on self interest.
- Class struggle: It divides the society into two classes-one is rich in resources and called capitalist other class is weak and called labourers or workers. Profit earning by workers and exploitation gives birth to class struggle. It raises the gap between the rich and poor.
Economic Activities : Those activities that include distribution, production and consumption of goods for their livelihood.
Non-economic Activities : Those activities which are undertaken by love, inspiration, affection and not done for earning money.
Capitalist Economy : It is an economic system for the means of production and for profit by private ownership.
Social Economy : It is an economic system where production is carried out directly for social use by public or social ownership.
Mixed Economy : It is an economic system that consists of both public or social ownership.
Integral Individual : It is an individual who is an integrated form of mann, budhi and atma (mind, intelligence and soul).
Whole Wisdom : According to it an individual should give stress on production for maximum profit earning.