May 13, 2015

Formal and verbal description of the evolving economy

Comment on Lars Syll on 'Why the ergodic theorem is not applicable in economics'


For the reader's convenience here again the shortlist of the economic propositions that may reasonably be received without proof.#1

These seven equations a.k.a. macrofoundations contain the core of all of the constructive heterodox economics, a reasonable verbal description of the implications fills a textbook.#2 So, here is the compact overview.

The first three equations describe the structure of the most elementary economic system, that is, the elementary production-consumption economy. The equations stand for income generation, production, and consumption and relate to a period of predetermined length. Legend: Yw=WL wage income Yw is equal to wage rate W times working hours L. O=RL output O is equal to productivity R times working hours L.  EC=PX consumption expenditure EC is equal to price P times quantity bought/sold X.

The 4th equation describes the time paths of the variables Z (← W, L, R, etc.)  of the first three axioms. The dot symbolizes the discrete rates of change per period.

The 5th equation says that the total profit of the business sector is the sum of monetary profit and nonmonetary profit. The 6th equation says the same for saving of the household sector.

The 7th equation finally describes human behavior in the most general form as target-oriented. Directed human behavior and chance determine the rates of change in the 4th equation.

All equations together define an open-ended simulation of the elementary economy which, as a well-defined mathematical object, can be formally summarized by one single equation, see Wikimedia AXEC25
The shortest verbal description of the equations' objective economic content spans 16 pages and is titled Essentials of Constructive Heterodoxy: Behavior.

Egmont Kakarot-Handtke

#1 Wikimedia AXEc137b

#2 Sovereign Economics BoD