Saving “the Market” out of Cambridge: “Alice in Wonderland”
Two
millennia and a half ago, the great Chinese teacher Confucius preached, “Masters
shall get the names correct before leading people” (正名, zhèngmíng).
This maxim could not be more relevant as regards macroeconomic theories of
today.
The unfortunate facts of
macroeconomics includes an abundancy of misnomers and miscomprehension of names in
other disciplines, classical economics included. With so many misnomers and
misuses, macroeconomics naturally misleads
people, “endogenous” or “exogenous.” Mainstream macroeconomists seem at best to
be masters in name only.
For instance, “equilibrium,” general
or otherwise, is for mechanisms, never for organisms. In every sense, ether the
market or the economy is an organism
The “marginal unit” must mean a small
but accountable unit of product, duration,
place or value. The unit of account for a product, say, the apple must be in
the natural unit, dozen, pound, kg, kl, roomful and the like, There is no
way to account for one tenth of the
natural unit or dozen, not to mention infinitesimal thereof. In other words,
the marginal unit is the unity (1) in
the chosen metric of the community. All
the same for a marginal period or a marginal
space; the metric for marginal value is of course the currency unit. The
rest of us would never mind one 100th of a dollar, but for a lucky
penny.
In mathematics jargon, each and
every “variable” of economics shall be “discrete” beyond “differentiation” and “integration.”
For instance, no supply or demand curve may be assumed to “nicely behave” so as
subject to calculus.
No wonder as in Wonderland of
macroeconomics, on the contrary, Alice et al. routinely wander the quadratic
venue of Time’s Square in search of three-powered apples. They never feel like
a clown or get motion sickness, in and of course.
Next on, the case of “exogenous
variable”: When macroeconomists were careful enough, they should have known
that the term is an oxymoron at best and misleading
at worst. In other disciplines the term would have been replaced with “parameter.”
The difference between a variable and a parameter: the former regards inside activities
to result in a consequence ex post;
the latter an environmental factor defined and given ex ante.
Take for still more the “equilibrium
price” (p*) in the market and the
price level (P) in the economy. They
are determined at the end of the accounting period. As such they can work at
best as a reference point in the following period. Simply put, both are by
birth parameters. The parameter can no
more be continuous in the accounting period than the accounting period can be continuous
across periods.
If the price level is a parameter,
it can in no way vary ‘nicely” for the sake of deriving the AD curve (cf. Ben Bernanke et al. Macroeconomics). All that a parameter
can make is a discrete shift of an “endogenous variable,” and that in a
different period. We must remember that there is no “Case B” in reality available for “empirical tests” or else.
Between the rest of us, in fine, in conjunction with the IS-LM
and AS-AD models macroeconomists freely vary
a “variable” into a “parameter” or the reverse “for the sake of their convenience.” Mencius say, “Do not
expect fish off the tree” (緣木求魚,
yuánmùqiúyú)!
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