Real World Non-Equilibrating Supply and Demand Theory
Gerson P. Lima
Doctor in Economic Theory by the University of Paris (1992), Professor Emeritus of Macroeconomics at the Federal University of Paraná, Brazil, retired, is an independent researcher.
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
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.