Real World Non-Equilibrating Supply and Demand Theory

Please cite the paper as:
Gerson P. Lima, (2016), Real World Non-Equilibrating Supply and Demand Theory, World Economics Association (WEA) Conferences, No. 1 2016, Capital Accumulation, Production and Employment:, 15th May to 15th July 2016

Abstract

It seems that mainstream economics adopted a kind of a Frankenstein version of the supply and demand notion, created by their authors of economic theory fiction. Actually, mainstream supply and demand fake theory scares almost all real world economists to the point of rejecting the notion of supply and demand itself and not only its mainstream fiction version. This paper demonstrates that what produced this Frankenstein are the hypotheses and assumptions adopted by their creators; with such hypotheses and assumptions it is impossible to create a theory. A distorted version of the reality came thus about, and the distorted economic policy then created to make the rich richer also steered the world to financial, economic and social crises. After demonstrating that mainstream supply and demand is not a theory, this paper develops a real world supply and demand theory. The theoretical background comes basically from the Marshall ́s idea of supply, from Keynes ́ ideas about disequilibrium, and from Maslow ́s idea of human needs on the demand side. The real world test, described in details, is the estimate of the aggregate supply and demand model of the United States. This experiment also presents the practical application of the aggregate supply and demand theory to the analysis of the effects of each economic policy instrument on the aggregate supply and demand curves and thereof on GDP, price index, employment, income concentration and so on. For example, the conclusion about monetary policy is that it caused prices to rise and GDP to fall, that is, inflation and unemployment. Results obtained indicate that this theory adhere to the reality and that Marshall and Keynes were working on a promising way to create a real world economic theory based on the supply and demand interactions. Finally, the paper suggests that this Marshall and Keynes work may be retaken, ideally by a research group aiming to elaborate a realistic and democratic economic theory and policy, and to create a new paradigm. In so doing, it must always be taken into consideration that it was planning to avoid this real world economic theory that the few reach commanding the economy hired those authors of economic theory fiction and ordered that Frankenstein.


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8 Comments ↓

8 comment

  • Fernando de Almeida Martins says:

    Professor Jonathan Barzilai’s new paper on Economic Theory’s Curves, 2016,
    told us that the usually “curves” of Demand and Supply simply does not exist.! A relation among three or more variables is not a curve!
    With price, supply quantity and demand quantity one variable is ignored!

  • capital2016 says:

    Professor Jonathan Barzilai is just demonstrating, as all other neoclassical mainstream economists, that he does not know supply and demand theory and the reason why is in my paper. For instance, it is observed that mainstream monetarist doctrine states that price depends on the money stock or the interest rate; so, mainstream supply and demand is a Frankenstein. My paper proves that a supply and demand theory exists, that it is not neoclassical and that supply and demand may be estimated. To prove that this paper is wrong it is not sufficient to oppose a statement by someone; you must falsify some part of the demonstration or the entire theory presented.

    • Fernando de Almeida Martins says:

      I. I was talking of some standard representations of a Supply and Demand Diagram.
      II. I quite agree that supply and demand theory exists and that supply and demand may be estimated.
      III.The point was simply that “Economic “curves” are not curves except when the values of all but two of these variables are properly specified and fixed”, Professor Jonathan Barzilai’s paper above page 2.

      • capital2016 says:

        Ok, Fernando. Thank you again for clarifying your points. Jonathan Barzilai’s paper just criticize without proposing solutions.

    • Fernando de Almeida Martins says:

      I. I was talking of some standard representations of a Supply and Demand Diagram.
      II. I quite agree that a supply and demand theory exists and also that supply and demand may be estimated.
      III.The point was just that “economic “curves” are not curves except when the values of all but two of these variables are specified and fixed”.
      In sum, a function of three variables is not a curve!

  • Raymond Aitken says:

    Hi Gerson, I’m still reading you paper which presents many important considerations, which I will get back to later. In the meantime, regarding your statement on page 4:

    “The mainstream research agenda cannot admit the possibility that governments print money to execute the budget democratically discussed and approved by their congresses. The mainstream economics states that government must issue Treasury bonds; only central banks can print money out of nothing – and they do so to buy bonds from the Treasury.”:

    There is a very interesting historical precedent, whereby in the run up to the First World War, the mother of today’s central banking system (the Bank of England), got the British government to issue debt-free Treasury Notes, called the Bradbury Pound[1], which were backed by the credit of the nation. This emergency measure was done in order to prevent a run on the banks, because at that time physical currency could be exchanged for the precious metal commodity that backs/controls the mutant hybrid[2] commodity money system. Once this temporary threat was traversed, the government then dutifully terminated its issue of debt-free Treasury Notes, so that the nation would be forced to pay interest (tribute) to the commodity-money bankers for prosecuting this war. It seems that this recent historical precedent has been flushed down the memory hole.

    NOTES:

    [1] For information about the Bradbury Pound, see 2015 my LinkedIn article: A Nation’s Treasury can issue its own money; at: https://www.linkedin.com/pulse/nations-treasury-can-issue-its-own-interest-free-money-raymond-aitken

    [2] For an explanation of what I mean by “the mutant hybrid commodity money system”, see my comment “[1] HYBRIDIZATION OF TWO MONETARY PARADIGMS” at: http://capital2016.weaconferences.net/papers/money-a-social-contract-or-an-invisible-hand-of-inverted-totalitarianism/#comment-31