Wages of Science

In the United States, Congress approved, last month, increases in the 2003 budgets of both the National Institutes of Health and National Science Foundation. America is not alone in – vainly – trying to compensate for imploding capital markets and risk-averse financiers.

In 1999, chancellor Gordon Brown inaugurated a $1.6 billion program of “upgrading British science” and commercializing its products. This was on top of $1 billion invested between 1998-2002. The budgets of the Medical Research Council and the Biotechnology and Biological Sciences Research Council were quadrupled overnight.

The University Challenge Fund was set to provide $100 million in seed money to cover costs related to the hiring of managerial skills, securing intellectual property, constructing a prototype or preparing a business plan. Another $30 million went to start-up funding of high-tech, high-risk companies in the UK.

According to the United Nations Development Programme (UNDP), the top 29 industrialized nations invest in R&D more than $600 billion a year. The bulk of this capital is provided by the private sector. In the United Kingdom, for instance, government funds are dwarfed by private financing, according to the British Venture Capital Association. More than $80 billion have been ploughed into 23,000 companies since 1983, about half of them in the hi-tech sector. Three million people are employed in these firms. Investments surged by 36 percent in 2001 to $18 billion.

But this British exuberance is a global exception.

Even the – white hot – life sciences field suffered an 11 percent drop in venture capital investments last year, reports the MoneyTree Survey. According to the Ernst & Young 2002 Alberta Technology Report released on Wednesday, the Canadian hi-tech sector is languishing with less than $3 billion invested in 2002 in seed capital – this despite generous matching funds and tax credits proffered by many of the provinces as well as the federal government.

In Israel, venture capital plunged to $600 million last year – one fifth its level in 2000. Aware of this cataclysmic reversal in investor sentiment, the Israeli government set up 24 hi-tech incubators. But these are able merely to partly cater to the pecuniary needs of less than 20 percent of the projects submitted.

As governments pick up the monumental slack created by the withdrawal of private funding, they attempt to rationalize and economize.

The New Jersey Commission of Health Science Education and Training recently proposed to merge the state’s three public research universities. Soaring federal and state budget deficits are likely to exert added pressure on the already strained relationship between academe and state – especially with regards to research priorities and the allocation of ever-scarcer resources.

This friction is inevitable because the interaction between technology and science is complex and ill-understood. Some technological advances spawn new scientific fields – the steel industry gave birth to metallurgy, computers to computer science and the transistor to solid state physics. The discoveries of science also lead, though usually circuitously, to technological breakthroughs – consider the examples of semiconductors and biotechnology.

Thus, it is safe to generalize and say that the technology sector is only the more visible and alluring tip of the drabber iceberg of research and development. The military, universities, institutes and industry all over the world plough hundreds of billions annually into both basic and applied studies. But governments are the most important sponsors of pure scientific pursuits by a long shot.

Science is widely perceived as a public good – its benefits are shared. Rational individuals would do well to sit back and copy the outcomes of research – rather than produce widely replicated discoveries themselves. The government has to step in to provide them with incentives to innovate.

Thus, in the minds of most laymen and many economists, science is associated exclusively with publicly-funded universities and the defense establishment. Inventions such as the jet aircraft and the Internet are often touted as examples of the civilian benefits of publicly funded military research. The pharmaceutical, biomedical, information technology and space industries, for instance – though largely private – rely heavily on the fruits of nonrivalrous (i.e. public domain) science sponsored by the state.

The majority of 501 corporations surveyed by the Department of Finance and Revenue Canada in 1995-6 reported that government funding improved their internal cash flow – an important consideration in the decision to undertake research and development. Most beneficiaries claimed the tax incentives for seven years and recorded employment growth.

In the absence of efficient capital markets and adventuresome capitalists, some developing countries have taken this propensity to extremes. In the Philippines, close to 100 percent of all R&D is government-financed. The meltdown of foreign direct investment flows – they declined by nearly three fifths since 2000 – only rendered state involvement more indispensable.

But this is not a universal trend. South Korea, for instance, effected a successful transition to private venture capital which now – even after the Asian turmoil of 1997 and the global downturn of 2001 – amounts to four fifths of all spending on R&D.

Thus, supporting ubiquitous government entanglement in science is overdoing it. Most applied R&D is still conducted by privately owned industrial outfits. Even “pure” science – unadulterated by greed and commerce – is sometimes bankrolled by private endowments and foundations.

Moreover, the conduits of government involvement in research, the universities, are only weakly correlated with growing prosperity. As Alison Wolf, professor of education at the University of London elucidates in her seminal tome “Does Education Matter? Myths about Education and Economic Growth”, published last year, extra years of schooling and wider access to university do not necessarily translate to enhanced growth (though technological innovation clearly does).

Terence Kealey, a clinical biochemist, vice-chancellor of the University of Buckingham in England and author of “The Economic Laws of Scientific Research”, is one of a growing band of scholars who dispute the intuitive linkage between state-propped science and economic progress. In an interview published last week by Scientific American, he recounted how he discovered that:

“Of all the lead industrial countries, Japan – the country investing least in science – was growing fastest. Japanese science grew spectacularly under laissez-faire. Its science was actually purer than that of the U.K. or the U.S. The countries with the next least investment were France and Germany, and were growing next fastest. And the countries with the maximum investment were the U.S., Canada and U.K., all of which were doing very badly at the time.”

The Economist concurs: “it is hard for governments to pick winners in technology.” Innovation and science sprout in – or migrate to – locations with tough laws regarding intellectual property rights, a functioning financial system, a culture of “thinking outside the box” and a tradition of excellence.

Government can only remove obstacles – especially red tape and trade tariffs – and nudge things in the right direction by investing in infrastructure and institutions. Tax incentives are essential initially. But if the authorities meddle, they are bound to ruin science and be rued by scientists.

Still, all forms of science funding – both public and private – are lacking.

State largesse is ideologically constrained, oft-misallocated, inefficient and erratic. In the United States, mega projects, such as the Superconducting Super Collider, with billions already sunk in, have been abruptly discontinued as were numerous other defense-related schemes. Additionally, some knowledge gleaned in government-funded research is barred from the public domain.

But industrial money can be worse. It comes with strings attached. The commercially detrimental results of drug studies have been suppressed by corporate donors on more than one occasion, for instance. Commercial entities are unlikely to support basic research as a public good, ultimately made available to their competitors as a “spillover benefit”. This understandable reluctance stifles innovation.

There is no lack of suggestions on how to square this circle.

Quoted in the Philadelphia Business Journal, Donald Drakeman, CEO of the Princeton biotech company Medarex, proposed last month to encourage pharmaceutical companies to shed technologies they have chosen to shelve: “Just like you see little companies coming out of the research being conducted at Harvard and MIT in Massachusetts and Stanford and Berkley in California, we could do it out of Johnson & Johnson and Merck.”

This would be the corporate equivalent of the Bayh-Dole Act of 1980. The statute made both academic institutions and researchers the owners of inventions or discoveries financed by government agencies. This unleashed a wave of unprecedented self-financing entrepreneurship.

In the two decades that followed, the number of patents registered to universities increased tenfold and they spun off more than 2200 firms to commercialize the fruits of research. In the process, they generated $40 billion in gross national product and created 260,000 jobs.

None of this was government financed – though, according to The Economist’s Technology Quarterly, $1 in research usually requires up to $10,000 in capital to get to market. This suggests a clear and mutually profitable division of labor – governments should picks up the tab for basic research, private capital should do the rest, stimulated by the transfer of intellectual property from state to entrepreneurs.

But this raises a host of contentious issues.

Such a scheme may condition industry to depend on the state for advances in pure science, as a kind of hidden subsidy. Research priorities are bound to be politicized and lead to massive misallocation of scarce economic resources through pork barrel politics and the imposition of “national goals”. NASA, with its “let’s put a man on the moon (before the Soviets do)” and the inane International Space Station is a sad manifestation of such dangers.

Science is the only public good that is produced by individuals rather than collectives. This inner conflict is difficult to resolve. On the one hand, why should the public purse enrich entrepreneurs? On the other hand, profit-driven investors seek temporary monopolies in the form of intellectual property rights. Why would they share this cornucopia with others, as pure scientists are compelled to do?

The partnership between basic research and applied science has always been an uneasy one. It has grown more so as monetary returns on scientific insight have soared and as capital available for commercialization multiplied. The future of science itself is at stake.

Were governments to exit the field, basic research would likely crumble. Were they to micromanage it – applied science and entrepreneurship would suffer. It is a fine balancing act and, judging by the state of both universities and startups, a precarious one as well.

Sam Vaknin is the author of Malignant Self Love – Narcissism Revisited and After the Rain – How the West Lost the East. He is a columnist for Central Europe Review, PopMatters, and eBookWeb , a United Press International (UPI) Senior Business Correspondent, and the editor of mental health and Central East Europe categories in The Open Directory Bellaonline, and Suite101 .

Parallels Between Physics and Finance

It would be interesting to compare two sciences of physics and finance. While one deals with the money the other deals with the physical universe. Both are important branches of studies so drawing a parallel between them will be interesting to many lovers of sciences.

Most of the theories in physics have models explaining a certain phenomenon. Whether it is electricity, magnetism, thermodynamics, gravitation each field has a subsets of models to explain various observations. For e.g. the Doppler Effect model in waves theory explains the plain variation of sound frequencies by a single set of equations. The Kirchhoff’s law explains the law of flow of electric current in a closed circuit of electricity is a model based on some set of equations. The financial theory in recent times has become model based where the price of options comes from Black S Merton models. There are a set of inputs required in the model to describe and price the option. Similar to the physics models where one need to put in several parameters values to find an ideal solution.

Uncertainty is common to both finance and quantum physics. Quantum physics has a ground in uncertainty and that everything we see is in a random state of motion. Everything is arbitrary and does not has well-defined laws that can predict the outcome. Heisenberg’s uncertainty principle states that the place and momentum of the electron cannot be determined simultaneously with exact precisions so where will be the electron located after sometime in the future cannot be determined exactly. Similar case happens in stock markets where an investor cannot be certain as where would be the index after sometime with exactness. There is always a degree of uncertainty associated with the market movements and thus closely resembles the Heisenberg’s principle. Interest rates are the most dynamic measure of all that keeps on changing with the time and shows volatility so predicting where it will go the next moment requires a rocket scientist who can by all his knowledge can come out with a shrewd model that can predict the interest rates sometimes if not all the times. This uncertainty is a very important concept that happens everyday in the financial world. The speculators, hedging traders and the arbitrage traders all face this uncertainty and the risk of the market movement that could loss or gain them financially.

The geometric Brownian motion describes the path of the particle suspended in a liquid. A physician first observed this random motion of a pollen grain suspended in a liquid to follow a random path termed as the Brownian motion. Einstein described these Brownian motion mathematically in his paper, giving a set of equations that could describe the path followed by the suspended particle. His equation explains that the path of the particle is jointly described by a constant displacement term and a volatility term. It is the set of these equations that explains today the path of interest rates, the path of stock market index or the volatility path.

In their famous paper Black S and Merton describes the path followed by the stock prices follows Brownian motion equations which laid the foundation for the famous Black S Merton model that is widely used today by traders all over the world to values options. Black did use the law of equilibrium of physics to lay the basic idea behind the Black S equation. The joint portfolio of a long stock and a short call option would yield the same constant risk free rate over a short period. So the joint position would always be restored to the same risk free return. Various interest rate models like the lee model, Ross model or the White Hull models are mathematically given by the same set of Brownian motion equation difference is only that they are different in their displacement terms and volatility terms to describe the interest rates movements. The displacement coefficient can depend on time, a constant or a zero.The volatility coefficient is also sometimes depends on time or on the volatility itself. Thus when it comes to determining an uncertain quantity in the future there comes into play Brownian motion equations.

Uncertainty plays a big role in valuation models used today for valuing securities like equity and bonds. There are a thousand of different scenarios of future are possible when forecasting the interest rates, earnings or the discount factors in the valuation exercise. Similar observations happens when calculating the path taken by electron. An electron can take a very large number of paths when moving from one place to another. Richard Feynman gave an approximate number for the path that the electron can take through his sum over histories methods. Similarly the earnings of the company can follow several paths. Monte Carlo simulation can see different scenarios of path and a final value calculated by taking a mean of values calculated from values observed in several different paths. The forecasted values could be misleading and could be totally different, in a similar fashion the electron place could be misleading and incorrect. So if price of a security cannot be determined precisely and exactly, the present state of the electrons cannot be used to predict the future place by the quantum theory precisely.

If there is uncertainty then some models and theories do come close to predicting the next outcome. Take such as the theory of photoelectric effect which has a single equation given by Einstein. Theory is simple and elegant and beautifully explains the observed phenomenon with high degree of precision experimentally. The bond valuation includes discounting the future cash flows which are certain to occur and through proper discount rates one can come close to exact present value of the bond in the market. Sometimes theories do come close in explaining the real world. If a physicist wants to explain the falling of a ball under gravity he would use equations of motion to describe the path of the body. The frequency of light in a heat radiation is given by energy divided by the Planck’s constant. Similar scenarios happens when a credit analyst wants to find the credit spread of a bond he would simply multiply the loss given default for the bond and the Probability of default for the bond.

Phenomenon of heat equilibrium states that the heat flow between two surfaces takes place until the temperatures of both the surfaces attains the same temperature and is in thermal equilibrium. Once the thermal equilibrium or two surfaces have equal temperatures the flow of heat stops. Arbitrage is the trading of incorrectly priced securities in different markets so if security is over-priced in one market trader sells in that market and buys in the market where it is under-priced until the price levels are same in both the markets. So flow of security takes place from the market where it is under-priced to the market where it is over-priced. See how temperature and price are analogous in explaining the two different phenomena’s in same way. So money is flowing from one market to another market in the same way that the heat is flowing from one surface to another surface till the state of equilibrium of prices or temperatures reaches.

The quantitative theory of money states that measure of money in the economy determines inflation. So if money supply increases then there is inflation and if the money supply decreases then there is lower inflation. It could be compared with the heating of a body so that if the temperature of the body increases the heat radiates in large proportions to the fourth power of temperature and if it lowers then the heat radiated lowers proportionally. The inflation measures the amount of excess money in the economy in a similar way the temperature of the body measures the amount of excess heat in the body.

Thus overall the theories of finance and physics could be seen in a similar way except that they are taking place in two different worlds. Various theories have models that have a few set of parameters. There is uncertainty in some theories then there is some certainty in other theories in explaining the observed phenomenon. Laws of electricity, magnetism, gravitation and heat are applicable in finance also but not in same way as in physics. The same sets of explanations characterize what happens in both the worlds in the end they are different sciences. While physics deals with the study of nature and observed phenomenon then finance deals with the study of markets and its instruments.Nevertheless some parallels can still be drawn that should not sound meaningless.

Finance the Technical Issue in Today’s Life

Finance is considered to be a single term explaining the science of funds management. The areas which are dealt in Finance are Business Finance, Personal Finance and Public Finance. The field of Finance deals with the concepts like time, money and risk. It includes lending as well as saving of money, it is also dealt as how money is saved and budgeted in a particular period of time and what are the risk that are taken for savings, lending and planning. All the three terms are interrelated to each other and used for the dealings done in the any kind of financial issue.

Basic work of Finance is done through individual and business organization. The money invested by them in different sectors and deposited in bank. In further bank lend this money as loan out to other individuals and organization for further investment and charges interest on the loans.

Loans have become a popular tool of Finance planning for both banks as well as individual, with loans the other tools of Finance that are popular in usage are the investment in stock market, buying and selling of mutual funds, bonds etc. Finance tools allows to securitize assets that can be traded as security exchange such as stock exchange which also includes bonds and equity that is related to public traded corporation.

Finance is used by individual, by government, by business organization as well as by wide variety of non profit organization such as schools, colleges NGO’s etc. In general the aims and objectives of all the above is to achieve financial security by using financial tools and instruments, methodologies with consideration of their own and individual personal and institutional settings.

Finance is considered to be one of the most important aspects of business management and also of home management that is managing individual’s life, without proper financial planning the enterprises is unlikely to be successful and for the individual the planning is necessary in order to have enough savings for their future as well as for an emergency situation. Making money and profit is essential to ensure the secure future for both organizations as well as for an individual. You can look for different type of financial deals that are required to develop any business online at various finance blog reviews websites.

You can invest money in online business as it will give good profit to you. Online businesses are very popular and its payback is also good. You need to do proper marketing of the business that you have started off online. When you invest your finances in the online business then you should get the benefit

Back to Basics in the Public School System

Today’s public education curriculum is much more complicated than it was fifty or even twenty-five years ago. Every year brings new things that educators feel are important enough to add to the curriculum. Teachers have to teach twice as much in the same amount of time. And our children are paying the price of not being able to focus on material long enough to do anything with it but remember it for the tests.

When was the last time educators and administrators combed through the curriculum as a whole and weeded out unnecessary lessons and combine concepts that naturally go together? Spelling, for example, no longer needs to place so prominently in this generation of spell check. Instead provide a list of vocabulary words and have students use them in sentences and stories. You’ll be teaching spelling, vocabulary and composition at the same time. Kids learn more from doing than being told anyway so it stands to reason that placing more emphasis on reading will spill over to grammar, spelling and word meanings as well as reading skills.

Alternatively schools need to stop teaching shortcuts where skills are necessary. It was a disappointing shock to me when I found out that my sons’ teachers not only allowed but encouraged them to use calculators when doing mathematics. How can they possibly learn advanced math when they are taught to let a calculator do the basics? Math skills build upon the previous skill so the basics here cannot be skipped.

Back to basics curriculum would put the emphasis on skills and knowledge that is most essential to living as a successful citizen in this society. Skills like basic math, algebra, reading, writing, basic science, world and U.S. history, personal finances, health, physical fitness, and computer skills would be included. By paring down the curriculum to what is essential for predictive adulthood; we can ensure that the majority of students graduate from high school with at least enough skills to succeed as adults. Note I said succeed, not merely get by in life.

Additionally it would be imperative with a back to basics curriculum to make sure to provide exposure to advanced material so any student with a passion – say aerodynamics or sociology – would be able to learn and gain knowledge and skills about that subject. Possibly a “Blank” period could be provided for the students to explore their own interests with the guidance of a teacher or a team of teachers.

This idea may not be perfectly ironed out but I believe it is a good start towards bringing authentic learning back into the public school classroom

Online Bachelor Degree in Finance

In the financial sector, the regulatory reforms and economic reforms have driven growth especially in the positions of financial analyst and personal financial advisor. The online bachelor’s degree in finance is designed in such a way to attain the financial management, interpersonal, and professional skills that you require to help companies or individuals to achieve good returns while maintaining financial and reporting integrity. A number of recognized universities have introduced various courses on online bachelor’s degree in finance. These degrees are ideally designed for the people, who reside in distant places or are unable to attend regular classes or can’t go for study due to some unforeseen reasons.

The bachelor’s degree in finance is extremely intensive as well as flexible program that covers a vast area of finance. The learner is benefited as he/she can acquire an all round knowledge about the subject. Usually, the topics for students include short and long term financing, banking relations, personal finance, investment analysis, risk management, corporate finance, financial accounting etc.

There are no strict requirements for enrollment into online bachelor degrees in finance. However, if you want to get admission to the online program, then it is essential that you hold a high school diploma. A basic knowledge in finance and a keen interest in studying the subject are essential for the successful completion of the course. It varies with institutes offering the course.

Some of the popular online bachelor’s degree in finance includes:

  • Bachelor of Business Administration (BBA) – Accounting and Finance
  • Bachelor of Science in Business or Finance
  • Bachelor of Science in Business Administration – Finance
  • Bachelor of Science in Business Administration or Corporate Finance

Upon the successful completion of the bachelor’s degree in finance, you can work as an auditor, accountant, finance advisor, and a budget analyst. There are lots and lots of job opportunities in finance in various sectors worldwide. Students can also pursue several managerial jobs in several private or government sectors.

List of Universities Offering Online Bachelor Degrees in Finance

  • Colorado technical university online
  • University of phoenix online
  • Kaplan University online
  • American intercontinental university online
  • Ashford University online

Finance, Credit, Investments – Economical Categories

Scientific works in the theories of finances and credit, according to the specification of the research object, are characterized to be many-sided and many-leveled.

The definition of totality of the economical relations formed in the process of formation, distribution and usage of finances, as money sources is widely spread. For example, in “the general theory of finances” there are two definitions of finances:

1) “…Finances reflect economical relations, formation of the funds of money sources, in the process of distribution and redistribution of national receipts according to the distribution and usage”. This definition is given relatively to the conditions of Capitalism, when cash-commodity relations gain universal character;

2) “Finances represent the formation of centralized ad decentralized money sources, economical relations relatively with the distribution and usage, which serve for fulfillment of the state functions and obligations and also provision of the conditions of the widened further production”. This definition is brought without showing the environment of its action. We share partly such explanation of finances and think expedient to make some specification.

First, finances overcome the bounds of distribution and redistribution service of the national income, though it is a basic foundation of finances. Also, formation and usage of the depreciation fund which is the part of financial domain, belongs not to the distribution and redistribution of the national income (of newly formed value during a year), but to the distribution of already developed value.

This latest first appears to be a part of value of main industrial funds, later it is moved to the cost price of a ready product (that is to the value too) and after its realization, and it is set the depression fund. Its source is taken into account before hand as a depression kind in the consistence of the ready products cost price.

Second, main goal of finances is much wider then “fulfillment of the state functions and obligations and provision of conditions for the widened further production”. Finances exist on the state level and also on the manufactures and branches’ level too, and in such conditions, when the most part of the manufactures are not state.

V. M. Rodionova has a different position about this subject: “real formation of the financial resources begins on the stage of distribution, when the value is realized and concrete economical forms of the realized value are separated from the consistence of the profit”. V. M. Rodionova makes an accent of finances, as distributing relations, when D. S. Moliakov underlines industrial foundation of finances. Though both of them give quite substantiate discussion of finances, as a system of formation, distribution and usage of the funds of money sources, that comes out of the following definition of the finances: “financial cash relations, which forms in the process of distribution and redistribution of the partial value of the national wealth and total social product, is related with the subjects of the economy and formation and usage of the state cash incomes and savings in the widened further production, in the material stimulation of the workers for satisfaction of the society social and other requests”.

In the manuals of the political economy we meet with the following definitions of finances:
“Finances of the socialistic state represent economical (cash) relations, with the help of which, in the way of planned distribution of the incomes and savings the funds of money sources of the state and socialistic manufactures are formed for guaranteeing the growth of the production, rising the material and cultural level of the people and for satisfying other general society requests”.
“The system of creation and usage of necessary funds of cash resources for guarantying socialistic widened further production represent exactly the finances of the socialistic society. And the totality of economical relations arisen between state, manufactures and organizations, branches, regions and separate citizen according to the movement of cash funds make financial relations”.
As we’ve seen, definitions of finances made by financiers and political economists do not differ greatly.
In every discussed position there are:

1) expression of essence and phenomenon in the definition of finances;

2) the definition of finances, as the system of the creation and usage of funds of cash sources on the level of phenomenon.

3) Distribution of finances as social product and the value of national income, definition of the distributions planned character, main goals of the economy and economical relations, for servicing of which it is used.

If refuse the preposition “socialistic” in the definition of finances, we may say, that it still keeps actuality. We meet with such traditional definitions of finances, without an adjective “socialistic”, in the modern economical literature. We may give such an elucidation: “finances represent cash resources of production and usage, also cash relations appeared in the process of distributing values of formed economical product and national wealth for formation and further production of the cash incomes and savings of the economical subjects and state, rewarding of the workers and satisfaction of the social requests”. in this elucidation of finances like D. S. Moliakov and V. M. Rodionov’s definitions, following the traditional inheritance, we meet with the widening of the financial foundation. They concern “distribution and redistribution of the value of created economical product, also the partial distribution of the value of national wealth”. This latest is very actual, relatively to the process of privatization and the transition to privacy and is periodically used in practice in different countries, for example, Great Britain and France.

“Finances – are cash sources, financial resources, their creation and movement, distribution and redistribution, usage, also economical relations, which are conditioned by intercalculations between the economical subjects, movement of cash sources, money circulation and usage”.
“Finances are the system of economical relations, which are connected with firm creation, distribution and usage of financial resources”.

We meet with absolutely innovational definitions of finances in Z. Body and R. Merton’s basis manuals. “Finance – it is the science about how the people lead spending `the deficit cash resources and incomes in the definite period of time. The financial decisions are characterized by the expenses and incomes which are 1) separated in time, and 2) as a rule, it is impossible to take them into account beforehand neither by those who get decisions nor any other person” . “Financial theory consists of numbers of the conceptions… which learns systematically the subjects of distribution of the cash resources relatively to the time factor; it also considers quantitative models, with the help of which the estimation, putting into practice and realization of the alternative variants of every financial decisions take place” .

These basic conceptions and quantitative models are used at every level of getting financial decisions, but in the latest definition of finances, we meet with the following doctrine of the financial foundation: main function of the finances is in the satisfaction of the people’s requests; the subjects of economical activities of any kind (firms, also state organs of every level) are directed towards fulfilling this basic function.

For the goals of our monograph, it is important to compare well-known definitions about finances, credit and investment, to decide how and how much it is possible to integrate the finances, investments and credit into the one total part.

Some researcher thing that credit is the consisting part of finances, if it is discussed from the position of essence and category. The other, more numerous group proves, that an economical category of credit exists parallel to the economical category of finances, by which it underlines impossibility of the credit’s existence in the consistence of finances.

N. K. Kuchukova underlined the independence of the category of credit and notes that it is only its “characteristic feature the turned movement of the value, which is not related with transmission of the loan opportunities together with the owners’ rights”.

N. D. Barkovski replies that functioning of money created an economical basis for apportioning finances and credit as an independent category and gave rise to the credit and financial relations. He noticed the Gnoseological roots of science in money and credit, as the science about finances has business with the research of such economical relations, which lean upon cash flow and credit.
Let’s discuss the most spread definitions of credit. in the modern publications credit appeared to be “luckier”, then finances. For example, we meet with the following definition of credit in the finance-economical dictionary: “credit is the loan in the form of cash and commodity with the conditions of returning, usually, by paying percent. Credit represents a form of movement of the loan capital and expresses economical relations between the creditor and borrower”.

This is the traditional definition of credit. In the earlier dictionary of the economy we read: “credit is the system of economical relations, which is formed while the transmission of cash and material means into the temporal usage, as a rule under the conditions of returning and paying percent”.
In the manual of the political economy published under reduction of V. A. Medvedev the following definition is given: “credit, as an economical category, expresses the created relations between the society, labour collective and workers during formation and usage of the loan funds, under the terms of paying present and returning, during transmission of sources for the temporal usage and accumulation”.

Credit is discussed in the following way in the earlier education-methodological manuals of political economy: “credit is the system of money relations, which is created in the process of using and mobilization of temporarily free cash means of the state budget, unions, manufactures, organizations and population. Credit has an objective character. It is used for providing widened further production of the state and other needs. Credit differs from finances by the returning character, while financing of manufactures and organizations by the state is fulfilled without this condition”.

We meet with the following definition if “the course of economy”: “credit is an economical category, which represents relations, while the separate industrial organizations or persons transmit money means to each-other for temporal usage under the conditions of returning. Creation of credit is conditioned by a historical process of fulfilling the economical and money relations, the form of which is the money relation”.

Following scientists give slightly different definitions of credit:
“Credit – is a loan in the form of money or commodity, which is given to the borrower by a creditor under the conditions of returning and paying the percentage rate by the borrower”.
Credit is giving the temporally free money sources or commodity as a debt for the defined terms by the price of fixed percentage. Thus, a credit is the loan in the form of money or commodity. In the process of this loan’s movement, a definite relations are formed between a creditor (the loan is given by a juridical of physical person, who gives certain cash as a debt) and the debtor.
Combining every definition named above, we come to an idea, that credit is giving money capital of commodity as a debt, for certain terms and material provision under the price of firm percentage rate. It expresses definite economical relations between the participants of the process of capital formation. Necessity of the credit relations is conditioned, from one side, by gathering solid quantity of temporarily free money sources, and from the second side, existence of requests of them.

Though, at the same time we must distinguish two resembling concepts: loan and credit. Loan is characterized by:

o Here, the discussion may touch upon transmission of money and also things form one side (loaner) to another (borrower): a)under the owning of the borrower and, at the same time, b) under the conditions of returning same amount or same quantity and quality of the things;

o The loaning of money may bear no interest;

o Any person may take part in it.
With the difference with loan, credit, which is somehow a private occasion of the loan, represents:

o One side (loaner) gives to the second one (borrower) only money, and _ for temporal usage;

o It may not bear no interest (if the assignment doesn’t foresee something);

o In it creditor is not any person, but a credit organization (at the first place, banks).
So, a credit is the bank credit. To our mind, it is not correct to use “credit” and “loan” as the synonyms.
Banking crediting is the union of relations between bank (as a creditor) and its borrower. These relations touch upon:

a) Giving a certain amount of money to the borrower for definite purpose (though, we meet with the so-called free credits, aims and objects of crediting are not appointed in the assignment);

b) Its opportune returning;

c) Getting percentage rate from the borrower for using the sources under his/her disposal.
The essential foundation of the credit essence and its important element is existence of trust between the two sides (in Latin “credo”, from which comes the word “credit”, means “trust”).
From the position of circulation of money forms (in the abstraction, historical process of formation economical relations and social budget and banking systems expressed by them) comparing different definitions of finances and credit, the paradox conclusion appears: credit is the private occasion of finances. And truly, from the position of movement of the money forms, finances represent the process of formation and usage of the funds of cash means. Very often such movements are fulfilled without returning, but sometimes, it is possible to give loans from the budget for the investment projects of other needs. Also, when a manufacture or corporations use their cash funds and we mean the finances of industrial subject, such usage may be realized as inside the manufacture or corporation (there is no subject about returning or not returning of the usage), so gratis under conditions of returning. This latest is called commercial form because of transmitting the sources to others, but even in this occasion, it is the element of financial system of the manufacture and corporation.

From the point of cash means movement, main character of credit is the process of formation and usage of the funds of cash means under the conditions of returning and, as a rule, taking the value-percentage. If gating the credit value doesn’t take place (even in the exceptional occasions), according to the movement form, credit becomes a private occasion of finances, as from the net financial funds (consequently from the state budget) the loans which bear no interests may be used. If gating credit value takes place, by the appearance form, credit is discussed to be financial modification.

From the historical point of view, finances (especially in the sort of the state budget) and credit (beginning with usury, later commercial and banking) were developing differently for considering credit to be the part of finances. Though, from the genetic-historical point of view, previous loaners, before giving loan, needed gathering the permanent capital not returning, that is the net financial foundation. The banks analogously needed concentration of the important own capital for influxing the consumers’ means and for getting higher percentage rate under the conditions of returning. Herewith, exactly on the financial basis, in the sort of financial fund (which later partially becomes loan fund) part of the bank capital appears to be the reservation (insurance) part of the fund, which by nature is financial and not loan. So notwithstanding the essential distinctions between finances and credit form the genetic-historical point of view, credit appears to be formed from finances and represent their modification.

From the essential position of expressing economical relations of finances and credit, we meet with cardinal distinctions between these two categories. Which mostly expressed by the distinction of the movement forms notwithstanding they are returnable or not. Finances express relations in the aspects of distribution and redistribution of social product and part of the national wealth. Credit expresses distribution of the appropriate value only in the section of percentage given for loan, while according to the loan itself, a only a temporal distribution of money sources takes place.
Herewith, there is a lot of common between the finances and credit as from the essential point of view, so according to the form of movement. At the same time, there is a significant distinction between finances and credit as in the essence, so in the form too. According to this, there must be a kind of generally economical category, which will consider finances and credit as a total unity, and in the bounds of this category itself, the separation of the specific essence of the finances and credit would take place.

Funding of the cash means is common to the researched economical categories. It takes place in any separate system of finances and credit, which have been touched upon during the analyses of defining finances and credit. Word combination “funding of the cash sources (fund formation)” reflects and defines exactly essence and form of economical category of more general character, those of finances and credit categories. Though in the in economical texts and practice, it is very uncomfortable to use a termini, which consists of three words. Also, “unloading” with an information hardens greatly its influxing into the circulation even in the conditions of its strict substantiation and thoroughness.
In the discussing context we consider:

1) wide and narrow understanding of economical category of the finances;

2) discussing finances in narrow understanding under general traditional meaning;

3) discussing finances, as funding of the cash means, in wide understanding, which concerns finances – in narrow meaning and credit – in complete meaning.
Termini “funding” and its equivalent “fund formation” are used by us as the purposeful structuring of cash means, which is based on two poles – accumulation of money sources (gathering) and its usage for definite purpose in the way of financing and crediting.
We have established a new termini – “finance-investment sphere” (FIS). Analyses about interrelation of finances and credit made by us give us an opportunity of proving, that in the given termini, the word “financial” is used with the meaning of funding cash sources, its purposeful structuring. In this process we consider at the same time financial, credit and investments’ economical categories.

Let’s sum up middle results of discussing new concept – “finance-investment sphere” and discuss its investment consisting parts.

The concept “investments” was brought into the native economical science from the West. In the Soviet economical science they for a long time used in the place “investments” the termini “capital placement”, which expressed the usage of the industrial factors in the sphere of real industrial activities during realization of capital projects. From one glance, this termini in its concept is identical to the “investments”, consequently it is possible to use them as synonyms. Though the termini “investments” and “investing” have the advantage towards the termini “capital placement” from linguistic and philological points of view, because they are expressed with one word. This is not only economical and comfortable in the process of working with the termini “investment” itself, but also it gives an opportunity of termini formation. More concretely: “investment process”, “investment domain”, “finance-investment sphere” – all these termini are much more acceptable.
Changing native economical termini with foreign ones is purposeful, if it really matters (by keeping parallel usage of the native termini for the inheritance). Though we must not change native economical termini into foreign ones all together, when by ordinal traditional language easy to explain private and narrow concrete processes and elements get their own termini. The “movement” of these termini is approved in the narrow professional bounds, but their “spitting out” into the economical science may turn economical language into the tangled slang.

Let’s discuss termini – “investment” and “capital placement’s” usage in the economical literature.
Investments are placement of funds into the main and circulation capital for the purpose of getting profit. “Investments in material assets – are the placements of funds into the mobile and real estate (land, buildings, furniture and so on). Investments in financial assets are the placements of funds into the securities bank accounts and other financial instruments”.

We don’t meet with the termini “investments” in the earlier economical dictionary, but we meet the combined termini “investment policy” – the union of the industrial decisions, which guarantee main directions of the capital investments, the activities of their concentration in the determinant suburbs, on which the reaching of planned rates of development of the society production is depended, balancing and effectiveness, getting more and more production and profit of the national income for every lost Ruble”. For today, in the most actual definitions, the capital investments are bounded only by financial means, when not only financial, but also the investment of natural, material-technical and informational resources takes place. Labour resources take an actual place in the investment process. They themselves fulfill this or that investment process.

A positive side of the discussed definitions is that they connect investment policy and capital placements (investments):

– economical development according to the key directions to the concentration;

– providing high rates of economical growth;

– raising an economical effectiveness, which is expressed:

a) by growing the throw off of the production and national income for every lost Ruble;

b) by fulfilling the branch structure of the investments;

c) by improving their technological structure;

d) by optimization of their further production structure.

Compared with such definition of the investments (capital placement) the definition of investments in the dictionary attaching the “Economics” seems to be unimproved: “investments – the expenses of gathering production and industrial means and increasing material reserve”. In this definition current expenses (production expenses) are mixed with the investment (capital) expense. Also, not the investment expenses but (though the investments are followed by the appropriate expenses) exactly advancing. It differs from the expenses by that the means (means) are put by returning the advanced values, also, under the conditions of growth, to which the concept-advanced capital is corresponding. the advancing may be realized in the money, natural-material and informational forms.

Except the termini “investments”, there are two more termini related with the investment. They are shown below.

“Human capital investment” – any activity provided for rising the workers labour productivity (in the way of growing their qualification and developing their abilities); at the expenses of improving the workers’ education, health and raising the mobility of the working forces”. It is very useful to use the mentioned termini, though it needs one correction: the human capital investments do not concern only workers, but also the servants, representatives of every kind of labour.
“Investment commodity, capital goods – a capital.”

In the official manuals of political economy of the reformation time the capital investments are discussed as “expenses for creating new main funds and widening, reconstruction and renewing the active ones”. In this definition the investments (capital placements) during separation of the forms (types) of further production of the main funds are bounded only by main funds (without increases of the circulation funds and insurance reserves):

a) creating new ones;

b) widening;

c) reconstruction;

d) renewing.

Also, the concept of the industrial gathering appears, at the expenses of widening of basic, circulation funds and also insurance reserves takes place”.

You’ll meet below the definitions of investments from “the course of economy”: the investments are called “placements of fund into the basic capital (basic means of production), reserves, also other economical objects and processes, which request long-termed influxing of material and cash means. “According to the division of capital into physical and money forms, the investments too must be divided into material and cash investments”.

They apportion investment commodity, to which belong industrial and nonindustrial building objects, vehicles purposed for changing or widened technical park and the furniture, increasing reserves and others.

“They call the total investments of production an investment product, which is directed towards keeping and increasing the basic capital (basic means) and reserve. Total investments consist of two parts. One of them is called the depreciation; it represents important investment resources for compensation of renewal till the level of before industrial usage, wearing out and repairing of the basic means. Second consisting part of the total investments is represented by net investments – capital investments for the purpose of increasing basic means”. Depreciation is not a compensation resource of wearing the basic funds out, but it is the purposeful financial source of such resources.
Human capital investment is “a specific kind of investments, mostly in education and health protection”.

“Real investments are the investments in the economical branches and also, they are kinds of economical activities, which provide influxing the increases of real capital, that is increasing material values of the industrial means”. We can agree with such definition with one specification that material and nonmaterial values too belong to the real capital (wealth), consequently science-researching experimental-construction results, various information, education of he workers and others. Such service as organization of the excitable games, also the service of redistribution social wealth from one private person to another (except charity).

“Financial investments represent placement of funds into the shares, obligations, promissory notes, other securities and instruments. Such investments, of course, do not give increases of the real material capital, but they help getting profit, consequently at the expenses of changing the course of the securities in the time of speculation, or distinguishing the course in different places of sell and purchasing”. We share wholly such definition, hence it follows that financial investments (if it is not followed by real investments as a result) do not increase real material wealth and real nonmaterial wealth. According to this context, the expression below is very important: “we must distinguish financial investments, which represent placement of the funds in the ways of selling and purchasing the securities for the purpose of getting profit and financial investments, which become cash and real, moved to real physical capital.”

In the “economical course” quoted before long and short-termed investments are separated. Recognizing the existence of the bounds between them, the authors ascribe short-termed investments to “one month or more” investments. If we get such conditioned criteria, that we can call the investments which overcome the terms of some months, long-termed ones, which is very doubtful and we don’t agree with it. A long-termed character of the fund placement is a significant feature of the investments (short-term doesn’t combine with the concept of investments). Principally, it would be better to point out quick compensative, middle termed compensative and long-termed compensative investments:

– less then 6 months – quick compensative;

– from 6 months up to the year and a half – middle termed compensative;

– more then the year and a half – long termed compensative.

We stopped at the definition of the investments in the capital work “economical course” for the special purpose, as, in it the author tried to discuss the concept of investments systemically and quite completely, herewith the book is published just now.

We’ll return to the discussion the definition economical category of “investments” in different publications in the following chapter. The definitions given here are quite enough for having a notion of the level of lighting up the given category in the economical literature.
What conclusions may be made according the definition of the mentioned economical category in the published works, except the made notions and specifications?

There is quite deeply, concretely and thoroughly defined the concept of “investments”, different definitions in the economical literature; but mostly in every works about the investments discussed by us until now, there is not opened the essence of investments as an economical category. In every monograph , even if it has a title investment, as an economical category , there is given only the definition, concept of investments. But, as the Academician Vasil Chantladze explains, “a concept is a discussion, which proves something about the distinguishing feature of the researched object. A concept out of much essential characteristic features represents only one, and essential in it is only – definition”.

But the categories are much wider; it is “a key, the most fundamental concept of every science”. Economical categories theoretically represent real, objectively existed productive relations. A category is the defining of occasions of existed characters, connections, relations of the objective world. Generally, any educational process is fulfilled by the categories, which give opportunities for dividing the processes and occasions semantically, for expressing the definitions of a subject and realize their specific peculiarities and economical relations of a material world.
Our goal is exactly to substantiate investments – as an economical category and also, as a financial category in the narrow understanding.

Here we apply for another manual thesis made by the academician Vasil Chantladze: “every financial relation is an economical one and every financial category is and economical one, but not every economical relation and economical category is financial relation and financial category”.
In the process of defining the investments, it is important to take in mind the sides of resources, expenses and incomes, because investment, from one side, is the result of the manufacture’s activity, and, from another one, – a part of income, which, in this case, is not used for usage.
Another occasion: it is advisable to discuss investments in two aspects: as a category of reserve and flow, which will reflect exactly the connection between “placement of funds” and “investments”.

As we’ve mentioned above, not long ago, in the well-known Soviet literature the concepts of “the placement of funds” and “investments” were accepted to be the synonyms and concerned to be investment of sources for further production of the main funds and formation of the turnover funds. We meet with such understanding of the concept of “investment” (here, they separate three types of the investment expenses: investments in the basic capital of investments, investments in the house building and investments in the reserves) in the modern economical publications and it is mostly used on the macro level during a statistical analyze of economical processes. In this concrete occasion investment is the category of reserve