Everything takes time. In 1991, an anonymous referee of the Journal of Economic Theory pointed out that what later was to be called Concordian economics contains “a new analytic engine” and that this engine ought to be “put through its paces” (Anon., 1991). All the work researched and published in the meantime (see, esp. Gorga, 2008) confirms the validity of this insight. The present paper is meant to achieve that goal.
The immediate spur is given by three events:
First, the publication of Gorga (2009a), an expanded edition of his 2002 volume titled The Economic Process;
Second, the publication of Gorga (2010a) in the History News Network, an essay titled “Hoarding and Most Economists”; and,
Third, the publication of Gorga (2010b) in The Rheol World, an essay titled “Concordian Economics: A non-Newtonian Construct.”
Concordian economics takes its lead from a revision of Keynes’ model of the economic system (Gorga, 1982). Notwithstanding myriad publications and elaborations that have ensued, mainstream economics and econometrics, at their core, are both founded on this model, which Keynes introduced at page 63 of The General Theory
Starting with a 1974 seminal paper (Gorga, 1974 ) and powerfully assisted by Professor Franco Modigliani and other eminent thinkers, this writer has for many years been engaged in a complex program of interdisciplinary research and publication that revises that model. Please, see https://en.wikipedia.org/wiki/Carmine_Gorga for details. For evaluations of this work, please see http://www.a-new-economic-atlas.com/p/evaluations.html.
As Michael E. Brady (2007) pointed out in his review of The Economic Process, while Keynes states that hoarding is a major problem, he “does not emphasize it…Gorga’s reinterpretation of the Y model allows him to reach Keynes’s conclusion… [and to] integrate it into a complex systems analysis…”
This presentation includes mathematical models and the geometry of Concordian economics to show that these models make full use of the best advances in current mathematics and geometry (see, e.g., Thompson, 1986; Mandelbrot, 1983). These models have been copyrighted by the writer. They are ready to be transformed into one econometric model, for which the core structure is given below
At first examination, the reader will notice the following particular characteristics of Concordian economic models:
- With a change of scale, they apply to micro as well as to macroeconomics
- They grow in a gradual progression from stocks to flows
- They are all interrelated with each other
- No element of the economic system is excluded from them
- They are of general comprehension as they are easily translatable into English.
This presentation is especially focused on some of the technical characteristics of Concordian economic models. They mainly regard the choice of units of measurement and a set of non-linear hypotheses involved in the structure of this new economic research program. The recognition of these characteristics will facilitate the preparation of the proposed econometric model.
A Few Simplifying Assumptions
It might appear that the means for the creation of a Concordian econometric model are beyond the means of any single institution or even many governments. That is true, because the model relies on new categories of economic thought; therefore, it requires a new apparatus of data collection and manipulation, and ultimately a new method of analysis that makes full use of modern non-linear mathematics and fractal geometry.
Practical considerations, however, have never been insurmountable obstacles for economists. They do know how to get around obstacles of a practical nature. They assume that their assumptions are a fairly faithful representation of the reality. And then they test the validity of such hypotheses.
A plan for the transformation of Concordian economics into Concordian econometrics would incorporate an imaginative application of this practice. The suggestion is to work at first with fictitious numbers.
Once the econometric relationships in the data sets are discovered, then a recommendation will be made to the appropriate authorities to invest resources to collect data in accordance with the new categories of thought.
Then fictitious numbers will gradually be replaced with true numbers.
The Question of Units of Measurement (See Appendix)
If the meter were as flexible a unit of measurement as the dollar, we would never have been able to reach the moon and return as safely and effectively as we did. If an authority as high and as directly involved in the evaluation of current econometric models as Alan Greenspan can be as negative in his assessment of these tools of analysis as quoted at the beginning of this presentation, it is mainly because all such models use each country’s currency as the unit of measure. As is well known, this shortcoming of mainstream economics becomes more telling when values of imports and exports are included in the computations and when measurement of the economy of many nations enters the analysis.
Since it divides the economic system into four equivalent modules, Concordian economics uses four units of measurement respectively for:
- the system of real wealth, or production process, or pure aggregate supply;
- the system of monetary wealth, or consumption process, or pure aggregate demand;
- the system of distribution of ownership of values of monetary wealth; as well as values of
- real wealth, or distribution process.
Assuming perfect equilibrium, one can alternatively chose either (3) or (4) and thus reduce the operational number of modules to three.
In accordance with this tripartite division of the economy, the first unit of measurement is used to estimate the quantity of real wealth. This unit is based on a new, yet to be firmly named, unit of account. In Concordian economics, the quantity of stocks of real wealth is conceptually measured with the help of a stable and constant numeraire such as “labor-units, yards of silk, or beans” (Gorga, 2002 and 2009a, pp. 38 and 308-309). The name is not important. What is important is that the unit be firm, uniform, and
as standard as the meter.
The second unit of measurement, as in mainstream economics, is the currency in “constant” units: this unit is used to calculate the value of monetary wealth. The third unit compares values of quantity of real wealth with value of monetary wealth in order to calculate the pattern of distribution of values of ownership rights over real and over monetary wealth (as noted above, in equilibrium there will be a one to one relationship between these two values).
One of the benefits of the proposed Concordian system of metrics is that it will let the economics profession face the issue of measurement openly and squarely. Keynes was aware of the essential need for a uniform unit of measurement, otherwise, he said, “precision will be mock precision” (1936, p. 40); but he basically had to give up (ibid., p.138). Today there is a considerable body of literature involved in the search for a unit
of measure that is objective, firm, and standard (cf. Matthews, 2000): Energy-units (ERs) or perhaps Matter-units (MUs) seem to be especially promising because they would help unify the physical and the social sciences; if physicists are able to estimate the mass of the cosmos, certainly they can be trusted to find a measure for tables and chairs and the mass/energy that goes into servicing tables and chairs.
However, if Oscar Wilde was right in saying that “Nowadays people know the price of everything and the value of nothing,” then David Goran Shedlack’s (2010) suggestion of building “Value-units” (VUs) is deeply intriguing. Value-units could be assigned by the creator of marketable wealth on the basis of objective Energy-units and attached to a piece of property just as asking prices are put forward today. Indeed, one does not have to go to exotic places to make the Value-unit operational; one simply needs to go to the literature that explains what is a util.
This literature will be evaluated and, most importantly, will be integrated into Concordian economics. This work is essential for three reasons.
First, one cannot have Concordian econometrics without a unit of measurement of real wealth that is as clearly identifiable, firm, uniform, and standard as the meter.
Second, one cannot understand Keynes’ General Theory without unraveling these issues of measurement. To mention only one fundamental case, it is impossible to understand what Keynes meant by the marginal efficiency of capital (mec) without resolving the issue of measurement of stocks of wealth. Suffice it to recall that Keynes’ most important operational analysis is all built on expectations of the interrelationship between mec and the rate of interest. Yet, the measurement made in mainstream econometrics of the value of mec is strictly and exclusively in monetary terms.
Third, one cannot resolve the issue of valuation in economics without a clearly identifiable, firm, uniform, and standard a unit of measure as the meter. As current raging discussions demonstrate, in mainstream economics this issue is left to accountants to resolve. Perhaps the community as a whole should be involved: After an initial period of turmoil, the global village will eventually settle on Value-units that might indeed become as clearly identifiable, firm, uniform, and standard a unit of measure as the meter.
In Concordian economics, the issue is intellectually resolved because, as noted, there are three systems and three units of measurement. These three sets of values are first estimated independently of one another, thus they offer the opportunity of a triple check on one’s reasoning and calculations, and then, as Professor Modigliani specified, they are tied together through an index of proportionality (see Gorga, 2002 and 2009a, pp. 215-221).
The proposed econometric study will transform this intellectual understanding of economics into the operational functioning of Concordian econometrics.
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.