Concordian Economics, Part 4: The Business Cycle

Written by Carmine Gorga, The Somist Institute

In Concordian economics the analysis is always in real time, hence it is always related to each one of the four phases of the business cycle. Even though the short-term shape of the initiator appears to be constant over the entire cycle, each phase of the cycle, as in general mechanics, has its own characteristics.

 The Four Phases of the Business Cycle

In the first phase, trends tend to increase at an accelerating rate. In phase two, trends tend to increase at a decreasing rate of acceleration, until growth stops altogether, and at times abruptly. The next instant marks the beginning of phase three, in which the trend is one of decrease at an accelerating rate. When the rate of deceleration is under control and peters down to zero, then the cycle enters its phase four. This is the phase of stasis or stagnation.

Of course, trends in economics do not strictly parallel the trends in the physical world for a great variety of reasons. Any trend in economics can be brought to an abrupt halt through willful application of effective counter measures. Not all actions in economics have well understood reactions as to timing and size.

And, perhaps most importantly, trends in economics do not reflect a univocal reality. Let alone differences due to geography, trends in economics can move out of phase with each other because of differences in timing: a particular phase for a certain trend can take place too early and another too late to be in synchronism with overall patterns.

The Course of Independent Actions

Above all, as seen above, trends in economics are the result of actions that occur—mostly independently of each other—in a variety of fields: the field of production of real wealth; the field of production of monetary wealth; and the field of attribution of ownership rights over real and monetary wealth.

To say the least, each one of these fields is governed by its own rules and regulations; and each one of these fields is fractured into a myriad of subfields that are well known to most economists who specialize in the understanding of any one such field.

Public goods certainly behave differently from private goods or from common goods. And then today, given their extraordinary size, one will certainly be mistaken if the behavior of not-for-profit institutions is not taken into consideration.

The Concord of Many Elements

Perhaps the major benefit of Concordian economics is its capacity to put each element of the system, no matter how small or insignificant, in relation to all other elements of the system as a whole. Indeed, in Concordian economics there are no elements that are too small; none that are insignificant.

The expansion of Concordian economics into Concordian econometrics will only sharpen such a sensitivity to the real world. And indeed, as Keynes demanded, this capacity will give precision to our discourse and analysis.

Also, in Concordian economics there are not a few variables that, alone, need to be followed. One needs to follow them all—and follow them all at once. They form part and parcel of the system of equations as formulated so far; and it is fully to be expected that many of these variables need to be much further refined and broken down into more detailed components. In Concordian economics one does not observe each variable independently of all others, but always in concert with all the others.

Conclusion:  An Analogy to Music

Finally, movements in Concordian economics do not follow a smooth flow as in Bach’s music; rather, as in Beethoven’s music they form cascades of harmonies and dissonances falling on each other to form a powerful dynamic compound.

Articles in this series:

• Concordian Economics, Part 1: Intoduction
• Concordian Economics, Part 2:  Geometric Representation
• Concordian Economics, Part 3:  Mathematics
• Concordian Economics, Part 4:  The Business Cycle (this article)
• Concordian Economics, Part 5:   Analysis and the Black Box of Saving (to be posted)

Appendix

Symbols, Meanings, and Definitions

Symbols in Concordian economics
ERs = energy-units
MUs = matter-units
VUs = value-units
H = hoarding
P = production of all real goods and services
D = distribution of ownership rights over real and monetary wealth
CG = consumer goods
KG = capital goods
GH = goods hoarded
OCG = ownership of consumer goods
OKG = ownership of capital goods
OGH = ownership of goods hoarded
EP = economic process
PED = principle of effective demand
npW = nonproductive wealth
pW = productive wealth
MY = monetary income
E = expenditure
Eh = expenditure to purchase goods to be hoarded
Ek = expenditure to purchase capital goods
Eg = expenditure to purchase consumer goods
If = expenditure on fixed capital
Iw = expenditure on working capital
Ck = expenditure on capital goods
Cg = expenditure on consumer goods
p = rate of change in total production
d = rate of change in the values of distribution of ownership rights
c = rate of change in total expenditure
r = the rate of interest
d = existing distribution of values of ownership rights
mec = marginal efficiency of capital
YL = labor income
rW = income from ownership of real and monetary wealth (capital income)
R = rent from land and natural resources
w = value of real wealth
m = value of monetary wealth.
***
Meanings in Concordian economics and mainstream economics
Y = income produced and consumed in mainstream economics
Y = income produced, distributed, and consumed in Concordian economics
C = consumption or expenditure to buy consumer goods in mainstream economics
C = consumption or any type of expenditure in Concordian economics
S = saving means literally 100,000 things in mainstream economics
S = saving means financial savings in Concordian economics
I = investment is equal to saving in mainstream economics
I = investment is all productive wealth in Concordian economics
***
Definitions in Concordian economics and mainstream economics

Note:  This series has been adapted from Beyond Keynes …. Toward Concordian Econometrics, International Journal of Applied Economics and Econometrics, Part III of the Special Issue on J.M. Keynes, Vol. 20, No. 1, Jan-March 2012, pp. 248-277.  The references for this work are listed at the end of that paper.