Saving "the Market” out of Cambridge: “Accounting Period”

Most troubles with Cambridge macroeconomics stem from fatal misunderstanding of the market framework. Just one of so many tragic instances is the comedy-like narrative, “In the money market, the demand for money slopes downward because the interest rate is the opportunity cost of holding money.” Those macroeconomists get each and every term of the single sentence wrong.

             For the purpose of “getting the market correct,” we navigate through as follows:

1)              Setting the boundary 2)              The demand curve 3)              The supply curve 4)              The opportunity cost 5)              Marginality 6)              Prices 7)              Equilibrium 8)              Pareto optimality 9)              Market aggregation 10)           Arbitrage and the one price

11)             Transaction costs 12)             Pareto ultimatum 13)             The role of government 14)             So-called “market failures” 15)             The folly of “fixed supply” 16)             The folly “bending backward” 17)             The folly “work” vs. “leisure” 18)             Alice in Wonderland 19)             The folly of “money market” 20)             “From Here to Eternity”

 

In the meantime, we focus on the product market as opposed to the rental market and the asset market. Other than confining the boundary, modus operandi is different among the three markets,

 

Setting the boundary

              “Here” as opposed to in “Eternity,” time is limited for each and every one of us. Like it or not, time in the meaning of duration is our ultimate currency gratifying our unlimited wants of necessities, conveniences and desirables. On the flipside, we must economize on our time in all activities. So, economy and efficiency has become the most basic job of ours. We do our best to “save the time duration” all through life (T^-1 in time dimension) all across the nation (L^-3 in space dimension) in securing our marginal utility (ΔM∙U, M for mass, U for value of Utility) for living.

             The first step toward efficiency is measurement to comparison. We are to choose the best alternative at each marginal step we take. In reality, we measure in more specific terms than time, depending upon the particularities at the marginal step. Most typically, the name dollar (U), if in the US, is used as the legal metric for value, or the unit of account as called in economic, in all the public trade.

             How to measure anything at all? As the first thing in the morning, we set the boundary conditions. Naturally, the market model comes with a certain community (L^-3) to serve and a certain period (T^-1) to account for. For instance, we state that the apples traded in Long Island over the week were such-and-such pounds at the so-and-so price in average. Only “for the sake of convenience,” textbook authors do not specify in words the period and the community.

             The “accounting period” is less than visible. By definition, nevertheless, the invisible must be seen. Watch out, the ghost is nowhere yet everywhere. One of the conventional wisdoms, moreover: All roads to Hell (L⁰∙T⁰), or Eternity for that matter, are paved with good intentions.