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Simplified Exposition of Axiomatic Economics

Victor Aguilar

posted on 10 November 2013

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I have written a book titled Axiomatic Theory of Economics.  This book is about a new economic theory.  It is not a simplified version of mainstream economics.  It does not predict the future, calling neither prosperity nor ruin in America.  It is certainly not in the “how to be a salesman” genre, nor does it propose to tell the reader how to make money in the framework of current financial institutions.  It is an abstract treatise. 

 

The purpose of this book is to give an axiomatic foundation for the theory of economics.  The success of the axiomatic method employed by Euclid (in geometry), Kolmogorov (in probability), and others is well known and I claim that similar success can be realized in economics.  However, by defining economics to be concerned with the creation of wealth rather than the allocation of scarce resources, I have not only solidified it but shifted its basic paradigm.  I address the issue of price and stock.  Supply and demand does not work.  This is a fundamental departure from mainstream economics comparable to that of Copernicus in astronomy.

 

The purpose of this article is to give a simplified exposition which is not too mathematically demanding.  This is accomplished by replacing an axiom to assume away the infinite summations so that readers need not be familiar with real analysis.  The essential points remain intact, however, as the theorems apply as well to partial sums (including the 0’th partial sum) as to infinite ones.  But the proofs are simple enough to facilitate a cursory reading.

Discussion

Criticism of my theory by Messrs. Davidson and Shipman has come to my attention:

 

Paul Davidson: "There is no time dimension for production to occur… Aguilar's system is an exchange economy operating only today without any future."

 

Alan Shipman: “It seems to be a theory of pure distribution, or of distribution in a non-growing economy which somehow acquired a stock of capital goods (no indication of where from) but doesn't add to it and doesn't have to maintain it.”

 

Price theory and capital theory are generally discussed separately because, at any given moment, the people setting prices and the people planning production must make decisions based only on the information that they have. The sales manager cannot go back in time and instruct the production manager to run a second shift at the factory – he has to set prices based on what is in the warehouse now. And neither can the production manager go into the future and ask the sales manager what the prices are next year; he can only ask the extant sales manager what prices are today and whether he predicts they will be higher or lower later. But just because they are different people making decisions at different times does not mean that they are not in communication with each other or that focusing on one of them assumes that the other does not exist.

 

The Distribution of Wealth over the Capital Structure (DWCS) is introduced in the Critique of Austrian Economics.  I elaborate on capital theory more fully in my Rejoinder to Mr. Murphy, contrasting it with the Marxian perspective of the owner of the final product looking back on his costs of production. For instance, Robert Murphy writes, “the consumer's good is always the 1st order, regardless of how far back we push the analysis, even if we go back to axes carved by prehistoric men." In contrast, the perspective of the DWCS is from right now, at time zero, looking forward into the future.

 

In fairness to Messrs. Davidson and Shipman, however, I will admit that the 24-page journal article that they downloaded makes no mention of capital theory and yet is advertised as a simplified exposition of the entire theory. So, while it is not true that “Aguilar's system is an exchange economy operating only today without any future,” if I were writing the Simplified Exposition today, I would make it longer and include a discussion of the DWCS in order to get both price theory and capital theory in the same document.

PayPal read my book!  When I logged into their new website, I was greeted with this header:

 

"There are no buyers and sellers, just people. "

 

In 1999 I wrote in the introduction to Axiomatic Theory of Economics:

 

"Both the people traditionally labeled 'consumers' and those labeled 'producers' appear in the demand distribution. The conceptual separation of consumers and producers is a great mistake of mainstream economics. They are all just people, each with a bit of the stock, and they are all prepared to sell if the price is above a certain point and buy if the price is below that point. The only thing that distinguishes people from one another is their point of indifference. This has little to do with who produced different bits of the stock, the event of production having occurred in the forgotten past.  When economists draw one curve called 'supply' and another called 'demand,' they are implying that the two are independent, for one cannot solve two simultaneous equations for two variables if the two equations are just versions of the same relation."

 

I do not believe in supply and demand and (apparently) neither does PayPal.