The Chimera of Macroeconomics

  There are many kinds of land; farm land , mining sites , deserts , Rocky Mountains , rain forests , Virgin Islands and the like. Some are in use, others not in use, still others of use, and the rest of no use. In the first place, the land is of no use until we cultivate it. We herein call cultivated land “ soil .”              Wayside, is there “land” of no use? As always, the answer depends on whom we ask the question of. Some economists, including many of Nobel would propose that the supply of land be “fixed.” Lo and behold, the production function , Y= f(L, K, N) ; the N for “land” is fixed all through the medium run, or per annum in vernacular. On the flipside, the land irrelevant to the GDP is of no use; particularly the GDP in equilibrium ( Y* ) as in IS-LM or AS-AD .              Probably the Appalachian Mountains would be a superb example of ab...

    In the beginning there was Value. We in economics are interested in value particularly associated with utilities, or “happiness” in the utilitarian language. Then, the opening question in discourse of economic value might well be, “What kinds of value are there in the beginning?” A fairly plausible answer will be, there are two kinds, i.e. raw ideas and raw materials . The former are of us, the humans, while the latter owing to Mother Nature.                In old times, raw ideas were created and processed into knowledge at each household. More publicly in modern times, the firm rents brain powers for research in search of raw ideas. When potentially useful, a set of raw ideas is patented and subsequently becomes a tradable asset , usually intermediate yet possibly final.              Again, the step-wise value-addition takes place gener...

Through the last couple of decades in the 20 th century, “ outsourcing ” was one of the buzz words in business. The implication: More often than not, “buy” from outside was more efficient (M ∙ U ∙ T -1 ) than “make” it inside, notwithstanding “ the Nature of the Firm .”              At any rate, “Rational People Think as the Margin.” Subject to: ① the fully-functioning machine is the marginal unit, as opposed to the infinitesimal thereof; ② the divide between “to invest or not to invest” is the rate of return 2% PA; ③ “make or buy” is a judgement call after thinking at the margin .   Free to choose. At the capital budgeting , the firm has, again, two alternatives, insourcing the machine and outsourcing the machine. Likewise is upon internal construction; that is, renting it in and selling it out.              In the Republic on the basis of free will a...

  There are largely two sources of supplying a kind of machine to the rental market, some of those evacuated at expiry of the rental contract and others newly constructed during the period. Incidentally, “the created” are aggregated into the gross domestic investment ( I for investment).   Construction of the machine. In practice, the machine is generally lumpy and endures for multiple periods of accounting. As such, the household purchases, or invests in, a machine more for the future than for the present.              The process of making the investment decision when in finance is called “ capital budgeting .” Most probably, the so-called “ financial economists ” have in mind the firm under strict (corporate) governance. The right interpretation, accordingly: The owning households of the firm collectively make the investment decision and take the subsequent actions; then on, the firm rents the ready-made...

  As opposed to the human asset, there in traditional economics are two types of physical assets, namely, physical capital and land . Instead, we herein use the terms “a machine” for physical capital and “a (piece of) soil” for land.              Incidentally, “ physical capital ” is a type of asset while “ financial capital ” is not. An asset creates a value on a side over the time; while a financial instrument balances previously-created values between two sides time after time and “many times over.” On the other hand, a unit of land is rented either as a site for occupation or as a soil for creation. We might regard a site as an asset without being a power; the site stands still while the power keeps on running.   The problem of “ full employment .” When ready to run, a machine as asset changes both the “nominal” name and the “real” hat to a mechanical  power . The machine in the warehouse is an asset ...

  Earlier we define the creation function (of each) to be: q= f(lh ∙ hr, kh ∙ hr, nh ∙ hr) , where lh is the labor force “hired” and ready to run, kh the physical capital equivalent, and nh the land equivalent. Following the general uses of terms in everyday life, we might better name them, human power, mechanical power and soil power , respectively. If unsure, please be reminded of the electric power , horse power , engine power and the like.              Incidentally  a piece of land is also traded as a site (per period of occupancy); while a person often lends the brain power on top of being a running power.              Again, a power never runs across space (L -1 ) but over time (T -1 ). Before getting a job done, in general, a “force” has to move a distance (L), while a “power” to run for a period of time (T). In the same vein, we nominally say the purchasing power ...

  For a starter, we quote from a super-popular textbook as regards the rental of the living site, say, in the City of London , for the coming couple of years. Gregory Mankiw , 2012, p.115 Believe it or not, the supply is constant (irrelevant or “exogenous”) all through from the short moving season to the long year of national income accounting . According to the author, the supply is “fixed.”              On the sidewalk, don’t get us wrong: A moment (T 0 ) is irrelevant as regards an organism such as the rental market. Or equivalently, a stock (T 0 ) is dead at each and every moment and is no less far away from the market than the Eternity is from us living particularly in “ the short run .”              Fixed? why, where, when, for what, to whom, and how? We say “at the moment” only to mean “in a shorter run than the short run.” There is no such thing in...