| Development of concepts |
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The fallible
man: in economics, this universal category of human
being implies that man always suffers necessities during his space-temporal
existence, he will satisfy some of them during a period of time which will be
repeated; the same way some of them were satisfied during a period of time,
others will not.
Necessity: state of discomfort or human dissatisfaction.
Scarcity (Sc): necessity that cannot be satisfied.
Human action: state of necessity that impels human action to improve (action
that tends to change a dissatisfactory state by a better one).
Purpose of
the human action: it is clear that the economic
action has a precise target, the one to improve its state of scarcity.
Utility of
the human action: or profit, is the difference
between the position following the action with respect to the previous one. It’s
worth highlighting that utility refers to the actor’s exante position,
that is to say, the expectations of improvements that are previous to the
action; and this goes according to the final result that could not be the one
expected. See its relationship with marginal utility.
Means for the
purposes of human action: the purpose of the human
action implies the means to achieve it.
Thing: all entity.
Good: useful thing to human necessities.
Economic good
(EG): scarce good, that is to say, the
available amount of a good is inferior to the amount demanded. We deduce that
all EG implies the concomitant existence of scarcity, origin of
the axiom of demand.
Possession of
economic goods: implies the availability of
economic goods for the human being to be oriented to his objective, otherwise
they cannot be considered economic goods.
Property of
economic goods: implies the previous state to the
availability of economic goods, to have the right to the possession of the
means. It is not necessary to be the owner of an economic good to have it; only
the owner’s consent is enough.
Ordinal
valuation of economic goods: is the
permanent necessity of prioritizing some economic goods over others according
to the valuations that the human being has of them. Man first categorizes and
then incorporates the cardinal idea, that is to say: first he focus on the
quality (characteristics of the economic good) and then pays attention to the
quantity.
Value of economic goods: the act of valuing (prioritizing) economic goods has to do with the one who values, according to the theory of subjective value (TSV), and not the valued object according to the classical theory of the objective value (TOV). Here it is very important to avoid the mistake of talking about value in an abstract sense, that is to say, without reference to an economic good. The TSV excelled the TOV because it is able to explain why an economic good is worth more than another which has more incorporated work – the famous case of the diamond that involves the mere effort of getting it versus other economic goods that imply a higher “cost”. It is evident that the TOV was leaving an important blank such as the one of explaining the value of things. Opposite to what is manifested in a popular way, the TVS excels the
TOV among other aspects due to: 1) implies placing man as the center of the
scene of the economic duties over the materialism that surrounds him, and 2)
implies taking as a starting point the needs of the human being, i.e. it gives
social grounds to the economy since man in society can improve his condition of
isolated person.
Quantity of economic goods: an economic
good, with specific quality, can exist in one unit or more. This seems trivial
but is the origin of the entity quantity which has an immediate
importance to the one of quality. Thus, quantity talks about units of
economic goods of specific quality.
Marginal utility of economic goods:
the unitary value of n units is greater than the unitary value
of n + 1 units and lower than the unitary value of n
– 1 units. In other words, this law of marginal utility is the essence
of the popular knowledge which says that greater quantity implies less scarcity
and vice versa, operating as the central axe of the theory of offer and demand
of the economic goods. Understanding this implies knowing how to read and
notice the information given by the prices generated by the interchanges of
economic goods that we will see further on.
Wealth (W): set of an owner’s
economic goods at a given time (time implies stock).
Rent (y): variation of
wealth that as in any variation is produced with the existence of time (period
implies flow).
Saving (S) – “dispensable term”: since
saving is considered as the rent that is not consumed, it is a flow that
becomes stock at the end of the period. Then, flow is synonym of rent (y),
and stock is synonym of wealth (W). In other words, the terms
wealth and rent are scientifically enough for the TET. The fact of
incorporating the concept of saving has led to unnecessary and/or wrong
developments such as the concept of partial wealth supported by the current
theories in the fundamental economic equation versus the equation of complete
wealth in the TET.
Present economic good: economic good
that exists at the owner’s present time.
Future economic good: economic
good that will be present at the owner’s future time.
Offer (O): synonym of
wealth, i.e. every offer refers to economic goods which can be demanded to be exchanged
or to have in stock.
Demand (D): set of economic goods
needed by the human being in a period of time (period implies flow)
Axiom of demand (AD): there
is no EG that is not demanded, otherwise it would not be an EG (there
is reference to this axiom in one of the interpretations of the so called Say’s
Law).
Axiom of scarcity (Sc = D - O > 0): for an economic good, or set of them, the Demand is always greater
than the Offer: D > O or its equivalent O < D.
This axiom implies that the economy is the study of maximums, not of
balances, concept with which the “moment” when the inter-personal exchanges of
economic goods stop is confusing because there is no agreement between the ones
who demand and the ones who offer to continue with them since they value more
the fact of keeping their respective stocks. From this axiom derives
incoherent terms such as insufficiency of the demand and sub-consumption.
We could define scarcity and its axiom like this: Sc = D – O > 0.
Axiom of the biunivocal relation “owner-economic good” (O-EG): there is no economic good without owner and no owner without
economic good. This axiom is the one which gives theoretical support to the
double-entry accounting, excellent mathematical-economic model. This axiom is
not exclusive of money in the way the Austrian School seems to
employ it since it has a theoretical need to support that money is always some
stock that belongs to someone.
Equation of total wealth versus Y = C + I: if we consider S as the set of produced economic goods, from the appearance of the human being in the universe, not consumed (as the current economy treats it), we conclude that S is equal to the assets of all the economic agents. From this derives: S = C + D + Bc + Cr – P + A + I. S (saving); C (consumption goods); D (availabilities); Bc (goods of change or merchandize); Cr (credits); P (passive); A (preventive-speculative hoarding); I (investment-capital). It is evident
that when considering society as a set, we can eliminate the components Cr and
P from the above mentioned equation because they are always the same (the
credits from some agents are the debts of others), then we have: S = C + D + Bc
+ A + I.
Theorem of permanent disequilibrium (S ≠ I): the equation of total wealth allows us to deduce that the state of economy is a permanent disequilibrium that implies that it is the study of maximums. It is noticeable the difference of the TET with respect to the concept of equilibrium supported by the current theories because in the place of S = I, by axiom (exante and expost) we have S ≠ I. And this is like
this because in the previous equation it is impossible that C + D + Bc +
A = 0, at any time and place since we are talking about a man without life that
not even consumes. Note: the transfer from I to the first member would make S –
I = C + D + Bc + A, but if S = I (as the theories of equilibrium support)
implies that S – I = 0.
Economic time: from the general relativity of time derives the special relativity of economic time. Time is the only economic good that presents the following exclusive characteristics:
Special relativity of economic time (indirect or improper materialization): is the only economic good that does not have life in itself, it is always materialized, without exception, into another present economic good.
Permanent scarcity of economic time: is the only good that will always be an economic good (price of economic time = i > 0).
Necessary participation of economic time (necessary factor of production): the special relativity of economic time also works as a complete ratification of the axiom of the necessary participation of time; from another point of view they ratify each other. This simple and revolutionary approach presented by the TET avoids recurrent repetitions and contradictions about the participation of interest in the conformation of all prices.
The difference with respect to the current theories is evident; they try to explain the participation of economic time from categories completely different from the TET – theory of the Austrian temporal preference, Keynes’ market interest theory of money, theory of physical/value productivity, etc. It is possible
to think that with the TET – especially with the consideration of economic time
as a factor of necessary production – we close or synthesize the
economic thought as regards its implications in the theory of distribution,
giving the subject a scientific frame and stripping it from all ideology or
mysticism (appreciation, usurious interest, etc.)
Interest (i): is the price of economic time. This very simple approach provided by the TET allows us to avoid the inconsistent and unnecessary theoretical developments around the theory of interest, let’s see:
Interest as the price of currency (money): the Austrian School asserted that interest is not the price of money. It is evident that it did not realize the axiom of im ≡ pm, which was prohibited due to the inconsistencies of its theory of interest and money – the last one basically due to the assimilation of money and currency. Keynes did work with the assumption that interest is the price of money; but as he did not realize the existence of the axiom, he made two big mistakes from which his theory does not have a comeback: 1) he generalized the axiom im ≡ pm for currency without noticing that with money this cannot be accomplished, neither can his currency theories, and 2) as he worked in a world of paper currency the axiom was completely valid, then his model based on im ≡ pm took him to treat them inadequately as independent variables. Coming back to the Austrian School we can say that: a) he did not realize the existence of the axiom im ≡ pm that implies the circumstance in which interest is indeed the price of currency; b) if Mises had noticed it, he would have claimed here the applicability of his known position about the impossibility of calculation in socialism (theoretical observation), and c) the discussion between Hayek and Keynes would have been very simple and easy to understand for the latter since his position is questioned in his own terminological and structural arena. Note: in many passages the Austrians implicitly treated interest as the price of money, but they did not do it within the frame of the axiom im ≡ pm (that they did not notice), they did it within the frame of the theories of currency and interest.
Indirect materialization of interest: unlike all the other theories of interest, the TET is the only one which realizes this exclusive category of interest because it is the price of time. The other theories try to apply this category to money and/or currency in a confusing way.
Theory of temporal preference: theoretical development necessary as a tool ad hoc in inconsistent currency theories, without theoretical entity in the TET. The TET shows the implicit circularity in the theory of temporal preference (see the development of the subject in “Application-Opinion”, section “Theory of interest - The TET versus the theory of temporal preference”)
Existence of interest: the current theories condition (explicit or implicitly) the existence of interest for the entrepreneur’s benefit, the physical or value productivity … etc. The current theories do not assign existence to the economic time as an economic good, and to interest as its price, reason why they do not meet the economic good-price axiom.
Theoretical causalities derived from interest: the TET avoids the pointless arguments on the interest-price causalities, interest-interest rate, and the discussion around the existence of interest, whether it is or not an economic good, a price, or if it is usury or not, etc. Mises expressed that “interest is not a price in itself”. (See below “Necessary participation of interest”).
Permanent positivity of interest: it is evident that the current monetary theories did not notice the permanent positivity of prices or the fact that interest is the only economic good which is perpetual for man, therefore, by axiom i > 0.
Approach of the physical or value productivity: the TET considers unnecessary, not even the approach, to link the existence of interest to any productivity, either in physical or value aspects.
Bhöm-Bawerk, Fetter and Hausmann´s approach: the TET does not need either any conditioning as the ones implicit in the approach that tries to show the existence of interest because it would not be possible to explain the present value of a capital good as necessarily inferior to the discounted incomes expected from their future services.
Summary: the current theories
have tried interest as if they shared alternatively the categories of economic
good and price, or neither of them. That is why they have wandered in
developments that are very close to mysticism and ideology (added value), and
that are far away from the scientific precision in the treatment of such a
delicate subject. We could synthesize that the current theories of interest did
not realize the axiom economic-price good. Due to all this, it is treated
“alternatively” as economic good, as price, neither as economic good nor price
(extra-economic mystical entity) and as the price of money (explicit or
implicitly).
Necessary
participation of interest: according to the axiom
of necessary participation of economic time, it is evident that the interest
(price of economic time) is, also necessarily, part of the prices of all the
economic goods. The TET ratifies, at the same time that it is also an
expression, the axiom of the necessary participation of the economic time in
all event of change in the economy. This necessary participation of interest in
the formation of all prices eliminates the theoretical pointless arguments
about the causality price-interest, interest-prices, interest-interest rate,
capital value, price of capital goods, theory of distribution, value of
productivity or productivity of value, concept of capital as an abstract entity
with the only purpose of calculation (Mises), etc. (see
more in: “Consequences of participation…”).
Currency
interest (im): interest
materialized in currency.
Credit: interpersonal exchange of economic time for the fact of being inter-personal exchange of present economic goods for future ones. In order to form a credit the necessary condition is the initial materialization, i.e., without the submission of a present economic good there is no formation of credit whatsoever – foundation used in the TET to show that the origin of currency-credit is also the market and not the State. The TET, when considering credit as economic time, also implies its indirect materialization. Therefore, we deduce that for the credit to be made perfect, i.e. regular, it is essential that one of the participants give the other party a present economic good in exchange of receiving from the latter an economic good that will be present in the future. This way, it can be realized that the credit, as an inter-personal exchange of economic time, requires double indirect or improper materialization, one that is initial for its existence and a final one for its extinction. Only now can we classify credit – according to what the TET tells us – in an adequate way as follows:
Regular credit: according to the TET, the regular credit is the credit that when starting needs the quality and quantity of the future economic good with which the obligation will be cancelled. That is to say, at the moment of starting, the regular credit specifies the quality and quantity of the present economic good in which the initial indirect materialization will be carried out. In other words, together with the initial indirect materialization the final one is specified.
Irregular credit: in opposition to the former, the TET defines this way the credit that when starting does not define clearly the quality and/or quantity of the future economic good with which the obligation will be cancelled. That is to say, when starting, the irregular credit does not specify the quality and quantity of the present economic good in which the final indirect materialization will be carried out. In other words, together with the initial indirect materialization the final one is not specified.
If you are wondering about the possibility of the existence of irregular credit, we not only confirm it but we also tell you that your social economic life goes around it. The currency paper (CP) that you have in your pocket is irregular credit that you gave in exchange of a present economic good (e.g. your work). If you have any
doubt whether the CP is an irregular credit or not, we invite you to read
carefully its text and to try to determine the quality and quantity of the
future economic good with which the credit you granted will be cancelled. Due
to the fact that we do not doubt that the exchange was a credit by which the CP
came to your hands, you handed in a present economic good for that to happen
(with exception to the act “considered” cancellation of debt through CP, that
for the TET is a novation of debt, i.e., to replace one debt for another).
Price of
credit: by definition of credit, its price
is the interest. This logic-deductive chain of the TET avoids the pointless
arguments around the causality interest-price, interest-capital and
interest-rate of interest.
Liquidity: necessity of rapid salability at economic price (without
significant loss of value between the act of buying and selling of the economic
good that satisfies it).
Currency: economic good that satisfies liquidity. Currency is the good of exchange of common use (concept that the current theories assign only to money). Currency can be money or credit, i.e., if currency is not money, it is credit and vice versa. We deduce that currency has a superior category than money – the fact of not understanding this point is the cause of the inconsistency in all the current currency theories.
Menger and the TET: the TET currency theory completes Menger’s theory of money, since he only referred to money. The TET tells us about the theory of currency that partially comprises money due to the fact that money can also be currency. At the same time, while Menger showed that money has its origin in the market, the TET showed (through accountancy, see book of TER) that when currency has the form of credit, its origin is also the market and not the State as supposed by the current theories. Finally, the TET shows that currency not necessary had to be first an economic good that later became currency – the State issues a “paper” that the market transforms into currency with the first exchange -, mistaken approach of Menger who gave way to Mises’ theorem of regression.
Mises’ theorem of regression: the TET showed the inconsistency and lack of necessity of such theorem.
Currency as an owner’s stock: is the approach from the Austrian School to defend its theory of currency, unnecessary support born in the inconsistency of the same theory that needs it because it has to do with all the economic goods given the axiom economic-owner good, axiom neither exclusive of money in particular nor of currency in general.
Interest as the price of currency (money): the difference with the TET is evident since it defines interest as the price of the economic time versus the current theories that, in an explicit way (Keynes) or implicitly (Austrians and quantitativists), consider it as the price of money, without realizing that this situation only occurs when currency has the form of credit and because this is economic time (exchanged interpersonally).
Currency and money: all the theories which are different from the TET assimilate both concepts for the fact of fulfilling the same function; it is like assimilating carts and cars. For this reason there are so many “currency aggregates” (addition of apples and pears) as likes there could be.
Purchasing power of currency (money): this is what supports the current theories when talking about purchasing power or “price” of currency. All economic good that is exchanged has the “power of purchase”, making evident that the theoretical need of talking of power of purchase comes ad hoc from inconsistent theories. The TET does not need such theoretical entity.
Currency, prices and interest: it is evident that the other theories did not realize the axiom of equivalence im ≡ pm > 0. See below in the section “Origin of interpersonal exchanges, reasons for currency”.
Currency-Money: present economic good
that fulfills the function of currency (gold, silver, cereal, etc.).
Currency-Credit: credit that fulfills the function of currency which can be regular
or irregular (the case of paper money). The TET shows the inconsistency of the
substitute term currency since currency is currency or not. It is evident that
the need ad hoc of the term comes from the lack of accuracy in the definition
of currency, money and credit - lack of accuracy that on the other hand the
same Austrian School seemed to underestimate disobeying
the principle of precision in the primitive terms (accepted by Mises, Hayek,
Kirzner, and others). From this mischance in a primitive term emerged
developments of dissatisfactory currency theories (Mises’ theorem of
regression, theories of interest, etc.). On the other hand, the concept of currency
substitutes gives rise to the even more mistaken Keynesian and quantitative
theories since it opens the door to “currency aggregates” (addition of
apples and pears), as well as the impossibility of unifying primitive terms
that could allow adequate epistemological comparisons between “different”
schools of thought that in the light of the TET have the same and inconsistent
theoretical grounds.
Axiom of
equivalence im ≡ pm: with currency-credit you can always meet im ≡
pm > 0. This axiom shows the inconsistency of the
mathematical models that treat interest and prices as different entities in a
regime of currency-credit, as well as the ones which admit i < 0.
Origin of
currency: it is always the market that
creates currency, it never has its origin in the State – be it money (Menger)
or credit (Bondone).
Axiom of exchange: all human economic action implies the existence of exchange of
economic goods. In other words, the simple existence of the fallible man
implies work, and the existence of work necessarily implies the existence of
exchange, at least an inter-personal one.
Intra-personal exchanges: are the exchanges of economic goods that the same human being makes along the time. Inter-personal exchanges: are the exchanges of economic goods between different agents. Inter-temporal exchanges: are the exchanges of economic goods along the time.
There are exchanges that combine the three of them.
Inter-personal
exchanges: in economy there are two types of inter-personal
exchanges: cash in which only present economic goods intervene (barter
and money), and credit where future and present economic goods do.
Origin of
interpersonal exchanges, causality for currency:
necessity is the origin of efficiency, efficiency is the
origin of specialization, specialization is the origin of inter-personal
exchanges, and inter-personal exchanges are the origin of currency.
This simple deductive chain that implies the concepts of marginal utility
and distribution of work has an enormous relevance in the entity currency
price which is in charge of measuring efficiency in economy.
Price (p): information that measures the scarcity of an economic
good and it is expressed in the amount of another economic good for which it is
exchanged. We can observe the following characteristics of this new definition
of price: a) a broader concept as far as it includes the different types of
existing prices according to what we can appreciate in the section Glossary
of Concepts in the book Theory of Economic Relativity, b) price
implies information, c) prices come from exchanges which are unique and unrepeatable
temporal-space events, d) the relativity of price of an economic good in the
amounts of another economic good which implies the non existence of what is
known as “absolute” price, e) the ratification of the axiom economic
good-price, there is no price in itself, and f) the consideration of price as
information to coordinate the economic human action in society.
Axiom
“economic good-price” (O-EG): there is no
economic good without price and no price that does not refer to an economic
good. This axiom is deductively derived from the concepts of exchange and
price.
Axiom of the
positivity of prices (p > 0): by the
axiom of scarcity and definition of prices, always p > 0, otherwise
the economic good, to which the price refers, would not be so. We can clearly
understand from the deductive chain of the TET that prices refer to economic
goods and due to its condition of scarcity they cannot have cero or negative
value. The difference with the current theories that present developments with
negative prices is evident, generally when referring to currency prices. This
axiom ratifies the popular sayings: “everything has its price” and, “there is
no dinner for free” (Milton Friedman).
Currency price
(pm): price of economic goods
expressed in currency.
Consequences
of the necessary participation of interest in the formation of all prices: besides the consequences expressed above (in “necessary
participation of interest”), the necessary participation of interest in the
formation of all the prices together with the axiom im ≡ pm,
are conditioners of the mathematical models. The fact of not realizing this
helped to tarnish the economy as a science, immersed in technological excesses
(econometrics) which deteriorated the theory that supports it.
Current value
(CV) and the equation of bonds: in
the TET results completely valid – with a more consistent and simple deduction
than the current theories – that: Current Value = Future Value / (1 + i)n
simply implies, within the TET, the incidence of time in the calculation in
which this has to be considered as a factor or component – with compound
interest formula. So, the relation known as the equation of bonds – that we
generalize as the price of a present good which has the component of time
(future) – that postulates an inverse relation between its present time and the
interest, results from the simple application of the TET. If an economic good
takes time, we have to incorporate its participation, the interest – as easy as
the price of bread has to take into consideration the price of flour.
Coordination
of the economic information (simultaneously imperfect, disperse and scarce): life in society and the human fallibility lead man to
manage economic information that is simultaneously imperfect, disperse and
scarce. The prices are the soul of such information with the purpose of
managing in a better way the human imperfection.
Credit to the financial system (bank): the so called credits of the financial system (bank) are always generated (granted) by the market, never by “the financial system”. Let’s see:
100% banking-reserve: in this case the banks operate like simple intermediaries.
Banking fractional reserve: in this case the bank notes – understanding by such the checks that operate current accounts or similar ones – they are simple papers that become credit at the moment in which the market exchanges them for a present economic good. That is to say, the one who carries out the initial indirect materialization bringing the present economic good for the credit to be configured is the market. The TET showed, by means of accountability, that both the currency paper and the bank credit have their origin in the market, extending Menger’s concept, which only referred to the origin of money in the market - currency.
The difference
with the current theories is clear, they postulate and analyze the performance
of the currency authorities as they expand or contract the credit, as if
the act that validates the existence of credit (contribution of the present
economic good as initial indirect materialization) were made by the State or
the financial system. In other words, the currency policies are imposed
by the market with the simple aggregate that the ones that get benefits by
speculating with financial matters (by analyzing assets and liabilities from
statements, the currency aggregates, etc.) at ignorant people’s expense.
Central Bank: in irregular currency systems, the independence of the
Central Bank is a utopia, and in regular currency system it is not necessary.
Although here are more theoretical developments – in the books Theory of
Economic Relativity and Capitalism and Currency, we can study in
depth the origin of paper currency and of the credit granted to the financial
system in general and to the banking system in particular when we talk about
irregular financial systems – with what we exposed here it is more than evident
the assertion of this section.
Theory of economic cycles: according to the TET, the so called economic cycles, from currency origin, are comprised within the theory of inter-personal exchanges, as far as a) the credits constitute a type of exchange, b) the exchanges facilitate the economic efficiency of man in society, and c) credit can be used – exchange of economic time – as currency. So the TET explains in a very easy way the economic expansion and contraction derived from the expansion and contraction of credit as it happens in the microeconomic sphere, the competitor who offers credit expands his business. On the other hand, the TET warns us that the use of irregular currency-credit (paper currency) derives inevitably in, at least, two unavoidable consequences: 1) economic instability, and 2) unfair distribution of wealth - situations that increase several times over if there is a fractional reserve system. Among other aspects, the theory of the economic cycles derived from the TET, allows us to assert the inconsistency of the so called concept “trap of liquidity”, let’s see:
Trap of liquidity: is the situation in which the currency policy (manipulation of “currency aggregates”) does not produce any kind of effect in the economy (either expands it or contracts it; take care of unemployment, prices, etc.).
According to current theories: the trap consists in not being able to explain realities like this one: that from the expansion of currency aggregates – that in current theories mistakenly implies an expansion of the offer of credit – could become a contraction of the economy as well as a fall of currency prices (deflation).
According to the TET: the analysis of such reality is, 1) if there is expansion of emission of currency aggregates (currency paper or expansion of the fractionary system) does not imply that there is expansion of credit. If the market does not carry out the exchange of initial materialization of such papers for present economic goods there is no expansion of credit. This is what has been observed in the last years, the currency authorities filled the vaults of the financial entities with such papers; 2) the fact that the credit has not expanded implies that by this side you cannot expect an expansion from the economy; 3) that the credit in reality has gone down implies that the economy by this side has to be contracted; 4) that the prices remain constant or go down (deflation) is within the frame that the contraction or the stagnation of the credit produce; 5) that the interest rate tend to cero is simply by the axiom of the equivalence im ≡ pm in systems of currency-credit, then the fall of the general level of prices implies the same for i – do not confuse negative variations of i and p with the fact that they acquire negative values since both are prices; 6) that the economy is immersed in permanent instability is a typical consequence of a group of companies that are suffering the collapse of a great debtor (irregular and totalitarian financial system). It is evident that if the market restarts granting credit to the financial system, that is to say, transforming “papers” (“rearguard wall”) into credit, contrary effects are probably to be expected.
Comparative system: it is very clear the difference between the simplicity of the financial events of the TET facing the amazement that arises from the analyses based in the current theories. The very simple explanation arises when it is observed from the adequate side, that is to say, from the side of the market that grants credit to the financial system, as the TET does, instead of observing from the opposition that supposes that the credit expansion or contraction is originated by the financial group State-System. Then, once this is noticed, the fact of only noticing the presence of the law offer and demand referred to credit is enough since it operates as a key element to expand or contract businesses.
Summary: the trap is in the theory. The so called “trap of liquidity” does not exist. Note: to read more about this subject,
“Theory of Economic Relativity” (The solution to the balance, Asymmetry of
Keynes, Keynes Paradox, Gibson Paradox, Inverted Paradox of Keynes, Paradox of
interest, Syndrome of the unknown debtor, etc.), in “Capitalism and Currency”
as well as in recent articles in the sector “Application (Opinion)” from this
page about the crisis started in 2008 (in reality in the decade of 1970 in the past century).
Theory of
distribution: is the summary of linking the theory
of production factors – now complete and closed with the TET that incorporates
the economic time -, the theory of subjective value, the marginalist theory,
the theory of imputation (expanded and ratified by the axiom economic
good-owner), the theory of prices according to Menger’s order (extended and
ratified by the axiom economic good-price), plus the theories incorporated by
the TET. Three sources of income clearly arise from the TET that we must
consider in the theory of distribution: wage (work) – rent (capital) – interest
(economic time).
Summary of the economic thought: the factors of production are work, capital (natural and created by man), and economic time. This last, incorporated as a factor of production by the TET, configures a kind of summary of the economic thought, from the classics to our time. This way, the developments incorporated by the TET allow us to consolidate the theory of distribution within the scientific precision that the “micro” economy had developed, from its origins as a science, leaving as dispensable the macro theoretical development, principally carried out during the XX century.
“…in the
light of the TET it is possible to realize the inconsistency of the current
macroeconomic theories and models (XX century …, in other words, the new TET
allows us to face with greater optimism the study of the real economic world …”
Carlos A. Bondone |
