Economic Theory

GENERAL INTRODUCTION

The Subjective and Solidarity Economic Theory (SSET) began in the Theory of Economic Time (TET), in turn derived from our Theory of Economic Relativity (TER). For this reason we have called this brief section as General Introduction, as it constitutes a presentation of the two introductions we make in this site:

  • Introduction to the Subjective and Solidarity Economic Theory (SSET).
  • Introduction to the Theory of Economic Time (TET), in turn derived from our Theory of Economic Relativity (TER): retains its initial content.

The logical deductive coherence between the two sections is a consequence of that our theories revolving around the THEORY of SUBJECTIVE VALUE, which Carl Menger bequeathed to us.




INTRODUCTION to the Subjective and Solidarity Economic Theory (SSET)

The dominant economic theory is incorrect. In this book is demonstrated that economic theory must be built on the basis of subjective relative values (utility), not in term of prices (supply and demand), as the current (classical-neoclassical) economic theory wrongly establishes, based in the failed of theory of objective value.

The socio-political confusion between the technological advance (son of the hard sciences), and social crises (with epicenter in the failure of economic theory) will have a solution in the light of the Subjective and Solidarity Economic Theory (SSET), present in this book.

The SSET refutes the statement of J.S. Mill that the theory of value and prices was complete, while demonstrating that he values is measureable and the positive correlation between inflation and unemployment.

The Subjective and Solidarity Economic Theory has an epistemological structure ― entities that behave according to natural laws― completely different from the economic theories that we know. This is evidenced in its definition, structure and central concepts:



Definition

Deductive logical theory that allows to understand economic phenomena in terms of the quantities of economic goods (total and exchanged), according to their behavior governed by the natural laws of: decreasing marginal utility of wealth (subjective) and relative marginal utility of exchange (solidarity).



NOTE: from its definition it is clear that the Subjective and Solidarity Economic Theory (SSET) dispenses with interest and currency (money) theories, unlike other economic theories. This insofar they are variables dependent on the two economic elements and his laws.



Deductive Epistemological Structure [1]


Stock of wealth:

Available (qt)

Exchange (qi)

 

+

Economic laws:

Subjective: law of decreasing marginal utility of wealth.

Solidarity: law of relative marginal utility of exchange.

=

Subjective and Solidarity Economic Theory



[1] That represents the confessed goal of Jevons, who failed to get involved in the methodology of the theory of objective value. His erroneous trigonometry (by statics) was the origin of all neoclassical economic theory.


Central Concepts


With definition and deductive epistemological structure of the economic theory in hand, we highlight some of his relevant concepts:

Subjective value: the human been assigns utility to things, versus the objective value that supposes have utility per se.

Wealth: synonym of subjective value assigned to things.

Relative values (SSET) versus relative prices (the other economic theories).

Utility: dimension of value.

Natural law of the utility: decreasing marginal utility of wealth.

Measurable value: according to the natural legal condition of its dimension utility.

General equation of the decreasing marginal utility of wealth: Um = qt / qx, with x ≤ t.

Equation of the Exchange: Urx(y) = Uy(x). Values (utilities) are exchanged, not quantities (exchange relationship of Jevons).

“Cross” correlation of the Exchange: ↑vx(y) ↔ ↑ yi.

Supply and Demand curves (Marshall): they do not explain the origin of prices.

Equation of the relative values: vx(y) = Ux /Uy .

The relative values determine prices.

Positive of the relative values: the relative values are always positive [vx(y) ˃ 0 and vy(x) ˃ 0], which implies the utility of the exchange.

Relative prices: simple coefficient between exchanged quantities.

Economic unit of measure: it is a price (relative value) chosen as a unit of measure.

Reverse causality of the economic unit of measure: in relation to the causality of the other sciences.

Neutral economic unit of measure: like any unit of measurement.

Non-neutral currency (money): as no economic good is ours.

Economic calculation: the currency (monetary) wealth can be calculated from relative values. That confirms to the prices are variables dependent on relative values.

Theory of interest: TTE and TRE are corroborated. This is the only economic good that participates in this circumstance: v = P = 1.

Theory of capital: it is explained by the curves of the marginal utility of wealth, without resorting to the theory of interest.

Theory of Savings = Credit: present wealth is savings and credit to the future.

The “invisible hand”: it is demonstrated by the Correlation of Adam Smith: ↑qi ↔ ↑ qt ↔ ↑w.

Economic Solidarity: it emerges by natural laws, not by religious, political, moral, etc. ―their interference harms human solidarity.

Positive Phillips Curve: is an empirical corroboration of the SSET.

Distribution of Wealth: the human being distributes the wealth according to an order of its decreasing marginal utility, for the actions of generating and saving wealth, and increasing for the actions of destroying and exchanging. Unlike the known equality:Ua/Pa =Ub/Pb =…Un/Pn = 1/Z ―inconsistent since the denominators are variable dependent on their numerator.

Quantitative theory of currency (money): it is reduced to a monetary rotation coefficient.

Axioms of the ONE of the relative ones: vx(y) * vy(x) = 1 and Px(y) * Py(x) = 1.

Causality of economic theories: marginal utilities precede and determine prices, the distribution of wealth, etc.

Virtuous economic circle of freedom: the full validity of the two economic laws allows: ↑w ↔↑k ↔↑v$(q) ↔↑P$(q) ↔↑qi ↔↑qt (being k the capital factor).

Currency (monetary) economic cycles: they are explained with the simple theory of price control, to which the currency does not escape. No special theory of currency (monetary) cycles is necessary.

Optimal evolutionary: its natural level is determined by natural laws, unlike the inconsistent Pareto Optimum.

“Law” of Gresham: it does not differ from the cross-correlation of exchange.

Economic Solidarity Index (ESI): will allow to evaluating statistically the degree of social solidarity.

 

 

INTRODUCTION to the Theory of Economic Relativity (TER)

Theory of Economic Time (TET)

 

This summary of economic thought emerges from the TET, which can be considered like a gap between Carl Menger and our current days, and presents here a brief introduction of the implications derived from this new theory.

This new economic theory not only overthrows foundations and concepts accepted until today but also replaces them by others with greater theoretical support that shed light over the dark scenario that characterizes the present reality of economics. Let’s see some of the new paradigms of the TET as opposed to the current ones:

  • The Theory of Economic Relativity (TER) tells us that the economic time is the only economic good that does not have life in itself; it is always materialized in another present economic good. The current theories tried to apply this category (TER) to the concepts of money, interest, prices, etc., a task doomed to failure for not having noticed: 1st) its existence and, 2nd) that it was an exclusive property of the economic time.
  • Currency can be money or credit and is different from the current theories for the fact that they only support the existence of the entity money. We frequently add the confusing and indefinite category of monetary substitutes that gives origin to the also confusing and indefinite concepts M1, M2,… Mn.
  • The origin of currency is always the market, be it money (Menger) or credit (Bondone), never the State. This is a completely different concept from the one we are used to because in the TET money refers to present economic goods (gold, silver, salt, cattle) and credit to future economic goods (currency paper).
  • The TET presents a new concept of credit and its price: credit is the inter-personal exchange of economic time; that is why its price is the interest. Concepts and causality different from the all ready expressed current theories.
  • The origin of credit derived from currency paper (CP) and bank note (BN: fractional banking system) is always the market, never the State or the financial system. So, neither the monetary authority nor the financial system expand or reduce credit as current theories support.
  • The TET warns us about the danger of confusing the market where credit is traded with the market where credit is originated-canceled. This confusion derives into unfortunate currency-financial policies that end up being useless (“liquidity trap”) or counterproductive (inequitable redistribution of wealth that generates social tension).
  • Interest is the price of economic time, not of money or physical/value productivity.
  • There is no economic good without owner and no owner without economic good.
  • There is no economic good without price and no price that does not refer to an economic good. From this we derive the axiom of positivity of prices.
  • Axiom of positivity of prices: always i > 0 that implies the inconsistency of talking about negative prices supported by current theories.
  • Axiom i > 0 that implies the impossibility that i ≤ 0, as current theories admit.
  • Theorem of permanent disequilibrium (S ≠ I), that rejected the already known equation S (saving) = I (investment).
  • New fundamental economic equation different from the one supported in Y = C + I.
  • The axiom of equivalence im ≡ p m implies the inconsistency of the current theories and econometric models, because both consider them independent variables.
  • Utopia of independence of the Central Bank (FED). In irregular currency-financial systems the independence of the Central Bank (FED) from the political power is impossible, and in regular currency-financial systems its existence is not necessary.
  • The TET shows us the mistake of assigning the recurrent currency-financial crisis to capitalism (free markets), mistake clearly and firmly expressed in other /i>currency-economic theories.
  • The TET shows us the CP as an instrument of general control of prices, aspect that previous theories did not notice because they did not realize the axiom of equivalence im ≡ p m.
  • The Banks are icons of anti-capitalism and not of capitalism as the popular feeling, derived from current theories, expresses.
  • Rejection of certain current assumptions as: Regression theorem of Mises (inconsistent and unnecessary) – Current theory of cycles (Keynesian, Monetarist and Austrian) – Interest theories: Austrian (founded in time preference), of productivity (physical or value), Monetarist and Keynesian, as they all define interest as the price of money, or do not define it as price – Phillips’ curve – 45 degree curve of Samuelson – Quantity theory of money – Garrison’s graphs – Locke’s problem – Say’s law – Gresham’s law – Neutrality of money – Gibson’s paradox – Keynes’ “barbarous relic” – Indirect mechanism of transmission – Under consumption or deficiency of demand theories – Price dichotomy of Patinkin – Real versus monetary economy (interest rate) – Economic equilibrium theory – IS/LM curves – Liquidity trap – Zero or negative interest – etc.
  • New theories of currency, money and credit; economic cycles; political foundations of currency and financial current systems; offer and demand; etc.
  • Summary of economic thought that the TET presents, different from the current theories in this following terms:

    a) Factors of production: work, capital (natural and created by the man), and economic time.
    b) Theory of distribution. The remuneration of the three factors of production are: wage, rent and interest. The interest, by TER, is always represented in another economic good, particularity that makes it systematically dependent on another factor of production. This implies that all mathematical-economic models must consider that situation to offer a unique solution, condition that current theories do not notice.

It is not exaggerated to say that the new theoretical foundations emerged from the TET present a new more promising economic future, both to the human being in particular and society in general. It would not be wrong to say that the TET allows us to express the following:

“The essence of capitalism is to satisfy your neighbor as yourself”

Maxim that today basically is not fulfilled due to the totalitarianism that underlies in the current currency-financial system supported by the theories accepted so far.

 

Central Concepts of the Theory of Economic Time (TET)

It is necessary to refer to the concepts presented below since many of them are new and others acquire more precision. Puritanism is essential in economics as a science; the fact of not having understood it like that has led to mistaken theoretical developments. Let’s see now some of the concepts that the TET presents as an introductory summary.

 
 
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New theory of money – New theory of currency – New theory of interest – New economic theory – Theory of capital
New theory of prices – Theory of subjective value – Theory of economic time – New theory of the distribution of wealth
Economic calculation – New macroeconomics – New microeconomics – Menger – Keynes – Mises – Hayek Friedman
©2006-2022 Theory of Economic Time de Carlos Bondone www.carlosbondone.com