If you are interested in economics and macro governmental intervention, then you may have been taught about the two most important theories of modern day economic management. These theories are known as neoclassical economics and microeconomics.
Economic management is a broad term that encompasses many fields and disciplines. When you are talking about economics, you will want to consider these two theories as they pertain to economic management.
Neoclassical economics is an economic theory based on the concepts of the business cycle. Neoclassical theory says that prices are determined by supply and demand. Supply is defined as a company's ability to produce a product or service; demand is defined as how many people wish to purchase it.
The concept of supply and demand is why it is easy for prices to be determined by supply. Neoclassical economists do not believe that government intervention is necessary in order to successfully run businesses. They do, however, believe that a balance between supply and demand is needed to keep price levels within reasonable limits.
Microeconomics is an economic theory based on the theories of the business cycle. Micro theory is the theory that the economic system is made up of a few entities that interact. A firm, a government, and the market itself.
Neoclassical theory does not require government intervention in the form of intervention with government spending. They are also opposed to the use of central planning. This is because central planning has always resulted in economic disasters.. Micro theory suggests that the price level can be changed by the actions of individual consumers or firms without affecting any other economic variables.
Micro theory is a much better fit for the concept of free-market capitalism. It doesn't require the need to regulate pricing through government spending.
It is important to realize that both of these theories do have their positive aspects and drawbacks. While both of them do have flaws, one is generally better suited for a free-market society and another for a socialist-managed economy. In a true free-market, free-market capitalism, the market forces of supply and demand play a vital role. It is a free-market system that is highly regulated and has minimal government intervention.
With the assistance of micro theory, a socialist-managed economy would have to rely heavily on macro governmental intervention in order to successfully operate. Neoclassical theory is not always a good fit for a communist-planned economy. There are many areas where macro intervention is required in order to make sure that the market is functioning properly.