The Chimera of Macroeconomics

There are two broad categories of “the market.” The one is to trade the title of the product or the asset. The second category is the market for rental right of space or creative powers . H erein we are interested in the second.  We call the right holder the  renter  and the title holder the lender .  What to rent. First, we need space whatever we are to do; residing, staying, idling, leisuring, travelling, consuming, creating, trading and the like. Second, we need the human power, also mistakenly called “labor” ( L ), in the process of creation. Third, we in creation additionally need physical powers out of “ physical capital ” ( K ) or “land” ( N ). Again, we with “creation” ( Y for GDP per annum, for instance) mean production of goods and services ( C for consumption) and construction of new assets ( I for investment).                While the powers are running for the renter, needless to say, ...

  When “A Time Runs through It,” it become another “River of No Return.” Once gone, forever gone, if in economics. However, owing to Paul Samuelson , arguably the first author of a textbook on macroeconomics , we are alarmed ( Economics 1948, p.9): What is true for economics of each market may not be true for macroeconomics of all the markets.              In macroeconomics, the time is supposed to stick around over an undefined period, particularly in the IS-LM and AS-AD models. Again in science, undefined, indefinite, irrelevant and inexistent are siblings (T 0 ). In short, “time is useless until we get” exogenous to Cambridge ( borrowed from Samuelson and Nordhaus, Economics , 2010, p.458).   Fallacy of composition . Yes, we in economics freely choose to work for utile quantities over the run, short or long, of time (U∙M∙T -1 ). If in the market, exchanges are voluntary all across but for virtually random...

  We recall the apple market from the previous blogpost: ① the exactly-same unit of Golden Delicious is the product ; ② the market is conceived for the community ; ③ the period for the sake of accounting is the year . Without the three names, the market would become indefinite, irrelevant, meaningless, useless, redundant, or just fun at best.              The medium of exchange in classical times was almost always in forms of legal tender such as dollar bills in the US. In modern times, however, the medium is extremely diverse in “real or virtual identities,” but always and everywhere “in the name” of legal tender such as the dollar sign ($).              Particularly since the year 1936, real money has been more often than not dispensed with, except for its name being continuously and consistently used. As regards “Money in the 21 st Century,” “only the ...

  We idealize the apple as to be “the product” traded in “the market” of textbooks; while the exactly same unit of Golden Delicious (GD) as the “marginal unit” selling at a price of bilateral agreement. In addition, we take “the year” as the accounting period, or equivalently the traded units of GD (“ q ” for quantity) are counted per annum (PA). Most students of old-fashioned economics would not fail to call the “ q ” a “flow variable” yet to be determined over the coming year.   The aggregate value added in the year. As the apple is “the final good” available at the end of the supply chain, the gross communal revenue equals the aggregate value added of apples “at the market value.” Technically, value added at each firm is “the sales revenue after all the purchases of intermediate goods from other firms ”; consequently we might well assume all the firms in the chain to be a single firm by way of abstraction ( cf . Figure below).             ...

  The reason for the gross disarray of   macroeconomics   is the aggregate miscomprehension of the market “Adam Smith talked about” (quote from Larry Summers @.gov/blog, 2009).              To be honest, the market is a model, a paradigm or a metaphor and that after a great abstraction. Consequently, the model is for application subject to numerous adaptations and adjustments. Furthermore, “the market” is for trade of goods and services, never for financial instruments. If anyone fuses “the market” of economics with “markets” of finance, you bet she is either an alchemist or a macroeconomist .              While Finance is balancing, Economics creates. A  CPA or not, n o accountant who is no macroeconomist would combine an income statement with a balance sheet.   Metaphor and applications . Take the Newtonian gravity theory for e...

  In the real life of economy, we create things and matters for the purpose of utilization. Using for the present, we name the thing or matter as “product.” Otherwise, we call it an “ asset .” Momentarily putting the demand side on hold, we conceive a mathematical function in account for the creative activities. In addition, we idealize away destructive activities no matter how creative they may be.              In present-day economics as discipline of studying economy, however, we produce something only for the sake of consumption at present. Consequently, we have the so-called "production function." On the other hand, the future consumption and construction of assets therefor are out of question. We in economics can hardly find any theories on the asset, even if we are alive and (hopefully) well for so many more years until “we are all dead.”              F...