Calamitous economic theory

In economy, there are some aspects beyond equilibrium that are not yet considered, this is one of aspects of complexity, the presence of subject.

Economy is science of economic transactions or must be this. Classic economic as D. Ricardo specify, refers as value creation and how this is created and traded from his origin and to final consumer.

But in economic theory there are a elephant in the room that is eluded by economic theorists… This is the subject.

In each economic transaction there are two subjects that value economic product. Each actor in transaction is a subject and determines value of merchandise in market.

First thing is accept this fact. xix siecle science in the need to formulate laws of economic behavior assume objectivity of value and surge Classic Economy.

In Walras objectivity of economic facts is not mater of dude.

A big impulse to assume subject presence did must be produced by Einstein  achievements but, in my few economic knowledge, no one has made this.

Now, how to put subject in a complex area as is economy?

My response is each participant in transaction have something and much what to tell in value of merchandise.

This step is difficult to give. People has separated supply and demand, and is comfortable with this schizoid image of economic world.

But world is only one.

In a transaction are present two, a buyer and a seller. each one as a criterion of merchandise value and implicitly the value of money. Seller know how he did get that, and have reference to valuate this merchandise.

Classic objectivity can be based in assuming perfect know of  both actors in economic transaction. One of few that stablish this is Milton Friedman who in his price theory assume locality to define demand and supply curves. Now he has no problem to extend his conclusions to all world.

Value (or price) is sustained thru seller criterion to appreciate merchandise, I suppose that seller have knowledge if merchandise is scarce, or if quickly or after long time can to appear other  merchandise equal or like this. But also seller or buyer can to ignore market behavior. The point here is both valuation don’t necessarily are  coincident.

Several cases are present in valuations of merchandise

1. Both coincide

2. We have 2 measures of merchandise value

In both cases money value is implicitly assumed by each participant.

If money is not present, then there are four cases where each participant make an estimate of value of each merchandise, this is one participant valuate both merchandises and so the other.

Perfect knowledge of market is assumed by various economic theorists. In this case i think reasonable to recognize  to levels of knowledge of merchandise value.

level 1 how much value specify the other participant and how much I value merchandise.

Level 2 how much the other participant value merchandise and how much asks.

Locality specified by Friedman is valid also for Walras and Ricardo, and in Ricardo case this may be extraneous if considering Ricardo’s relation with East Indie company.

In a locality, majority of economic theory assumptions are valid, however it is possible to construct local cases where are not valid. People with handicap, locally yet, can to make no «rationale» transactions .

International commerce, in other case, produces valuation of overseas merchandise  different of local merchandise value.

Non local transactions have a different merchandise valuation. This difference can be recognized as a «plusvalue». In international trade plusvalue is gained and associated to actor who participate in merchandise transport.

Say law on local commerce specify for each merchandise there are other to interchange. But when there are a plusvalue by distant o international commerce, a gap is produced in region with no access to international commerce facilities. This is the origin of international crises.  First occur in local country or region  with no access to overseas commerce. basically country o region that buy or sells giving plusvalue lose circulation mean and left in difficulties to realize internal commerce.

Walras model and Ricardo international commerce model obviate this and world is suffering crises and wars and all class of calamities.

4 comentarios en “Calamitous economic theory

  1. Yoshinori Shiozawa · 25.08 · 1.1 · Osaka City University

    Dear Francisco Viera,

    I am not sure if I have understand well what you want to say. However, there are some points I have to add.

    The presence of subject does not seem the major obstacle. It is a part of complexity problem, but not the main problem. As you put it , transaction are made by an agreement by two parties. However, the exchange ratio is not totally subjective. the classical economics such as Ricardo’s cost of production theory of value made clear that objective condition such as the cost of production (including normal profit) form the basis of all transactions.

    Jevons objected to this idea and contended that the value depends more on subjective evaluation than objective conditions. This is the starting point of neoclassical economics. Friedman’s idea that demand and supply curves must be defined on a local basis is only a minor modification.

    Commodities increases their values when they are put and arranged in a supermarket or in a store. The added value here comprises the transportation cost, handling cost and sales costs. They produce a new service by providing a good assortment, which has a great meaning for consumers. It shows by comparison what they want to buy (to make consumers discover the product they potentially want to buy) and decrease their efforts to go around for shopping (one stop shopping). If consumers highly estimate these efforts, sales volume and profit increase. Thus the retail prices are also decided by the total cost of production including service cost for merchandising. Subjective factors have a minor weight.

    It is necessary to make clear distinction between classical economics (or classical political economy) and neoclassical economics. In the time of Smith or Ricardo, people was not predominated by equilibrium concept. We may even say that those classical economists possessed a vague idea of dissipative structure. for example, Quesnay emphasized the circular process and return to the original position. After a cycle, the economy produces foods and materials and nurture the people. This is not a simple agglomeration of transactions.


    Can dissipative structure concept usefully take place of equilibrium framework in economic analysis? – ResearchGate. Available from: [accessed Jun 8, 2016].

  2. Dear Yoshinori

    Thanks for your rapid response and to think in the question exposed.

    Your objection comes from xviii century sense of objectivity. Objectivity don’t excludes subject, old science does. Objectivity must to include subject presence to account to reality. Physic when calculate mass, physical dimensions an time lapses must to know speed relation between subject to object to rightly understand that. Ricardo when specify production cost don’t refer to subject Dear Yoshinori

    Thanks for your rapid response and to think in the question exposed.

    Your objection comes from xviii century sense of objectivity. Objectivity don’t excludes subject, old science does. Objectivity must to include subject presence to account to reality. Physic when calculate mass, physical dimensions an time lapses must to know speed relation between subject to object to rightly understand that. Ricardo when specify production cost don’t refer to subject existence behind labor value. RIcardo don’t see bargain in labor market, or he was thinking in India where military colonial army impose wages?.

    Jevons and all other subjectivist, have a more important bias than Ricardo. They obviate transaction process in economy, for a sale one accord between two actors is necessary. This is basics for economic interchange. Ricardo excludes subject from low level economics, Jevons excludes only possibility to specify economy as a objective science.

    First thing is to think in local economic vs extended or overseas economic relations.

    Fernand Braudel make a distinction in local commerce and distant commerce. and explain how different actors specialize in each kind of commerce (Braudel)

    He said that in local commerce there are many actors and competence is normal, but extended commerce there are few actors and big capital accumulations. In local commerce, competence is rule and capital is distributed in many actors.

    Capital accumulation and power relations grow on international commerce. this is the history of modern world. Italian cities with their navy power accumulate capital and develop financial institutions and loan to european kings.

    I am speaking on antiquity power and commerce wars that fill the whole story. One of the virtues of the modern world is that expands the locality in the sense of knowing the cost of the goods in distant places. I can to buy by Amazon at local price in USA.

    Now, there are other complexity factors in economic, but I say that locality and knowledge by the subject of merchandise value actuate on economic social behavior at a primary level.

    In Ricardo definition of value locality is not present nor measure of value by the subject.

    Production cost also is not objective when you change to other subject or moves to other locality. At elemental level, two persons dont have equal capacities or abilities and in two locations is different man hour or journal cost.

    Out of local scope, value of materials needed to produce have different costs. To two actors, in different places, production costs in general are different. There are different work behavior and productivity.

    Locally there are also different productivity, and may be, material costs but local social pressure may be by state or local authorities action, locally conditions tends to approach.

    The subject, act, from principle in overseas or distant commerce, to develop power economic and involves politics power also. This is a source of behavior that deviate economic laws to monopolistic relations type.

    In second place, communications development augment locality. Political economic results of, unknowing merchandise value will be left in more specific areas

    To the measure that extends the local effects, extends democracy and reduce economic crises.

    (Braudel) Braudel Fernand, “LA DINÁMICA DEL CAPITALISMO”, 1986, FONDO DE CULTURA ECONÓMICA MÉXICO, Exists version in english

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