The Project Gutenberg eBook of Definition & Reality in the General Theory of Political Economy
Title: Definition & Reality in the General Theory of Political Economy
Author: Thomas Cool
Release date: May 30, 2005 [eBook #15939]
Most recently updated: July 31, 2020
Language: English
Definition & Reality
in the
General Theory of Political Economy
Thomas Colignatus
Dutch University Press
&
Samuel van Houten Genootschap
This text is made available by the copyright owner as an etext for the Project Gutenberg (see http://www.gutenberg.org). The Project Gutenberg header specifies under what general conditions the book may be distributed while associated with the Project Gutenberg trademark. Additional conditions are: (a) No commercial use or resale of the etext is allowed, (b) Hardcopy prints are to be acquired at the publisher Dutch University Press (see http://www.rozenbergps.com and ISBN 90-3619-172-6) or their designated partners. Please note that the etext uses HTML so that the etext layout will differ significantly from the official layout.
2nd edition,
January 2005
(The first edition was in March & June 2000)
Copyright © Thomas H.A.M.
Cool
http://www.dataweb.nl/~cool, cool@dataweb.nl
Colignatus is the preferred name of Thomas Cool in science.
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Prologue
The basic idea of this book is that Keynes’s General Theory is generalised even further by including endogenous government in the model, so that we arrive at a truly general Political Economy. The world had the Great Depression 1930-1940 and has the Great Stagflation 1970-today and by including ‘stagnation in economic policy making’ in our analysis we find a better explanation. The general theory also advises a democracy to create an Economic Supreme Court as a separate constitutional power, next to the Legislative, Executive and Judicial branches.
This book is primarily directed at my fellow economists and it primarily gives theory and stylized facts. The colleagues will specifically have to understand the ‘Definition & Reality methodology’ before they will appreciate that my analysis is scientifically warranted. Much work remains to be done in practical research. And much work remains to be done by the other professions.
Since the current imbalance of powers has many victims, it may be hoped, none the less, that the parliaments of our democratic nations investigate the issue too, so that there is more hope for improvement in their living conditions. Parliaments should do as Alfred Marshall (1890, 1947:3) wrote:
“Now at least we are setting ourselves seriously to inquire whether it is necessary that there should be any so-called ‘lower-classes’ at all: that is, whether there need be large numbers of people doomed from their birth to hard work in order to provide for others the requisites of a refined and cultured life; while they themselves are prevented by their poverty and toil from having any share or part in that life.”
Books are more stimulating and more enjoyable to read if they are guided by questions and if they cause questions themselves. This book has been written in the style that it provides answers and thus it must be feared to be a dull read. It is too late to change that style. However, some questions are: (1) How is it possible that Europe has an unemployment of about 10% for more than three decades now, and the USA the mirror image of poverty ? (2) Can we really trust our governments ?
With this book ends a project that basically started with the Fall of the Berlin Wall in 1989. My hope is that this book contributes to the fall of some other walls, i.e. the intangible mental ones, consisting of perceptions and conventions - but equally confining.
Contents in Brief
Book I Introduction 11
Book II Trias Politica and Economic Supreme Court 16
Book III Economics ‘as usual’ 36
Book IV Presentations for the general public 60
Book V Methodology: Definition & Reality 69
Book VI Structural models 87
Book VII Social Choice 158
Book VIII Supportive notions 186
Book IX Reduced form 198
Book X Conclusions 216
Appendices 266
The symbol ° is used to indicate market clearing equilibrium (and possibly expectational). The symbol * or E[.]is used for expectations and expectational equilibrium (and possibly market clearing). The symbol °* is used for both, and · for the one or the other (and possibly both).
Contents
Book I Introduction 11
1. Order of presentation 11
2. The general theory 11
3. Methodology 14
Book II Trias Politica and Economic Supreme Court 16
4. The Trias Politica 16
5. The economic record of the 20th century 18
6. An Economic Supreme Court 24
7. Position of the Court in economic theory 26
8. The record of economics itself 26
9. Economics ‘as usual’ and its inadequacy 30
10. Four empirical cases 32
11. The moral imperative 33
Book III Economics ‘as usual’ 36
12. Introduction 36
Stylized history 38
Structure of the argument 41
The difference that it means 42
13. Unemployment via taxes and minimum wage 43
The earnings distribution 44
Analysing the minimum wage 44
The Tax Void 47
Cause of the Tax Void 48
Development of the Tax Void 51
Marginal tax rate & VAT 53
Marginal tax rate & dynamics 54
Spillover and domino effects 56
Diagnosis and Therapy 56
Stagflation resolved 57
14. The 1974 Duisenberg disaster 59
Book IV Presentations for the general public 60
15. Unemployment solved ! 60
16. Enable Russia to help itself 64
Parallel 64
Risk not chance 65
Internal not external 65
Conclusion 66
17. Will the West repeat Versailles ? 66
Book V Methodology: Definition & Reality 69
18. How to check ? 69
19. Dealing economically with concepts 70
Maximising information power 70
Pythagoras and the circle 73
Falsification 76
Determinism and free will 78
From stylized fact to definition 82
Relating to Hicks 1983 83
20. Structural and reduced form 84
21. Direct application to the Economic Supreme Court 85
22. Methodological summary 85
Book VI Structural models 87
23. A textbook macro-economic model 87
The IS-LM model 87
The production function 89
Dynamics versus statics 90
Phillipscurve 90
Macro-economic interactions 91
24. Heterogeneity and nonlinear taxation 92
Heterogeneity versus homogeneity 92
Nonlinear versus proportional taxation 93
Some literature 93
25. Summary of current views 94
A simple view 94
A complex view 96
Efficiency wages intermezzo 96
A more sophisticated view 97
Confusions 98
26. Heterogeneous labour 99
Dromedary supply 99
Dutch income distribution data 100
Definitions and formulas 102
Amendment to the textbook model on the Phillipscurve 106
27. Subsistence 106
Definitions 107
Economic literature 109
Types of indexation 109
Formal development 110
28. Phillipscurve 115
Concepts 115
A homogeneous Phillipscurve 118
On expectations 121
Heterogeneous Phillipscurves 122
More factors that cause a shift 122
Crowding out 123
Poverty 124
The submarket Phillipscurves 125
Shifting back 125
29. Tax basics 126
Taxes and premiums 126
Common structure 127
Nonlinear tax function 128
Exemption 129
The marginal rate 140
Balanced growth 143
Off balanced growth 144
30. Dynamic curvature of the tax wedge 145
Introduction 145
Formulas 145
Graphs 147
31. Differential impact of the minimum wage on exposed and sheltered sectors 149
Introduction 149
Model 151
Graphs 152
Tables 154
Conclusion 155
32. Dynamic optimality 155
The Phillipscurve revisited 155
Investment, growth and productivity 156
Book VII Social Choice 158
33. Introduction 158
34. The solution to Arrow’s difficulty in social choice 159
Introduction 159
Basic concepts 162
Restatement of Arrow’s Theorem 165
A note on the name of APDM 167
A lemma 167
Rejection of the Arrow Moral Claim (AMC) 168
Rejection of the Arrow Reasonableness Claim (ARC) 168
Selection of the culprit axiom. 169
Examples of consistent constitutions 170
A reappraisal of the literature 170
Conclusion 172
Addendum: Sen’s restatement in “Development as freedom” 172
Addendum: Mas-colell, Whinston and Green, “Microeconomic Theory” 175
35. Without time, no morality 175
Introduction 175
Control of natural forces in the social process 176
Three traditional methods 177
Borda Fixed point 178
Relation to Saari’s work 179
Pareto 182
A note on cheating 182
Conclusion 183
36. Some notes on ethics 183
Book VIII Supportive notions 186
37. On the nature and significance of a free lunch 186
Some quotes 186
Consumers surplus 187
Economic growth 188
Conclusion 192
38. Proper definitions for uncertainty and risk 192
Uncertainty 192
Risk 193
Example 195
Wrong use in economics 1921-2005 196
Book IX Reduced form 198
39. The possibility of full employment in the welfare state 198
Introduction 198
Stylized facts 198
Concepts 199
The theorem 201
Graphical presentation 205
40. The possibility of co-ordination 206
Stylized facts 206
Concepts 207
The special theorem 211
The general theorem 213
On the interaction of the reduced form theorems 214
More on chance 215
Book X Conclusions 216
41. Relating to Mankiw’s “Principles” 216
42. Relating to Krugman, Phelps, Ormerod and Heilbroner & Milberg 219
Introduction 220
Review of positions and qualities 220