Economics: Selected Topics in Overview

David Nollmeyer

Page Two

        Economics is a systematic study of arguments regarding converting human and natural resources into goods and services. The creation of wealth and storing such as a value is also considered. This also known as management of a household. This can also be expanded to include a group or political entity. From this argumentation second theories have emerged as the starting point for logical discourse, economics attempting to unifying the theories.
        Foremost is the classicist position of Adam Smith which the supply side theory and monetarism have origins. The Wealth of Nations is the source text. Chamberlain is also sourced later in the development of free trade theories concerning monopolistic competition, and perfect and imperfect markets. There is a laizze faire overtone in the presentation of markets and monetarism in free trade thinking.
        In the elaboration of this line one also has to consider banking, income determination, and perspectives of short and long term equilibrium.
        Thomas Malthus is a thinker who put forth a theory of autarky, which includes the theory of distribution. This position has been discounted in the past but has useful insights and can be revisited. Tied to this position are moral implications, which exist in philosophy, sociology, and similar course work.
        Karl Marx is another economist who similarly argues that in economics as a whole affects moral behavior in man. His position of communism is the opposite of capitalism in property ownership, and rent and wage schema.
        In 1776 Smith wrote his classic treatise as a discourse against mercantilism, hence the advantages of the division in work, a system of colonies sending raw materials to a mother country in return for finished products.
        Money is a wheel of trade. The real wealth of any state is in its manual labor and is increased by organizing it more efficiently through specialization and accumulating product in the form of capitalization.
        As the master of free trade, Smith states the greatest position is derived when economics are held unencumbered by the state and other states. Hence a moral production is greatly increased free from the yoke of taxes which in reality are protectionist to a degree.
        Simply, a comparative advantage is discovered in a market. The most efficient producers should produce the good or service regardless of nationality. All is guided by an unseen invisible hand. Labor is absorbed in other markets of the inefficient producers as soldiers who return from war. This reflects a true self adjusting economy.
        Maynard Keynes published his general theory of labor, interest, and money in 1936. In simple analysis, the level of efficiency demands for consumers and producer’s goods may either fall short or exceed in economic ability to produce. The first case yields unemployment and depression. The second case where demands exceed production yields inflation.
        This analysis is based on the purchasing power of an economy, consumers, and over-the-counter purchasing. The national income is a functional determinant for the demand curve. Overall demand for producers goods, capital goods, depend on profit prospects and financing of capital products.
        Keynes is more active in the public policy area especially in the reducing of inflation. Lowering of wages does not create prosperity. This will not erect prosperity but employment reducing purchasing power. Exorbitant raising of wages is inflationary.
        Policy suggested in a simple format are such for inflation: 1. Reduce the money supply which will raise interest rates and decrease the demand for consumer goods. 2. Reduce government expenditures decreasing total demand for consumer goods. 3. Raise taxes or sell government securities to the public reducing the purchasing power of the public.
        The theory of value attempts to explain why goods exchange at particular prices. Shares distributed demonstrates analytical measures which involves wages of labor, profits of capital, rent of land, and profit of the enterprise.
        A distinction between classicist and radical positions is along a theory of value that prices of goods produced and sold under competitive conditions be proportionate to their productive cost. This argument is classicist. The radical position observes the cost of producing products that are secondary or assisting. Hence this latter case is presented by Ricardo and then later Marx postulated that labor and works are integral components defining cost.
        Thomas Robert Malthus bases a long run theory of distribution of the price of labor. This theory is based on population. This in its later format is interpreted as the minimum standard of living which labor feels necessary to support family life.
        If wages fall below that level, the growth rate of the labor class will decrease, the decline in supply raising wages. If wages are found to be above, the population will increase. This type of reasoning is similarly applied to capital and profit positions until equilibrium is reached.
        Malthus’ theory of war is similarly interesting. He argues that the competition for a natural resource or other resource will cause a war when there is depletion and the competition to replace such or seek substitution fail.
        This position has been criticized as fatalist towards economic Darwinism. The Lebensraum or living space argument of Hitler with the annexation of Czechoslovakia was derived from this thinking.
        Marx maintains a position of communism in his thinking. In his theory of value (labor theory) all distributive shares other than wages must come out of the difference in between what labor produces and earns.
        Three factors are involved: 1. Capitalization displaces workers. There is no need to increase wages (central supply) 2. Capitalist would not increase wages. 3. Crisis would prevent wage increases.
        Marxist communism is the refutation to classical political economy. Superstructural relations come into existence and production through constitutional law. Communism is more identical to natural law according to Marx.
        The dialectic of the argument states the worker class, proletariat alone is necessary, the bourgeois not. The proletariat at this point in time viz. 1850s cannot move without springing all into the air, hence the bourgeois.
        The establishment of the bourgeois as the ruling class was the only logical outcome of history. For this Marx was revolutionary. To complete Marxist economic assumptions, the state must control the means of production.
        Monopolistic competition is a modern extension of free trade. Such argues from assumptions to define principles, to define efficient economic production. In this argument a utility or need is derived to bring the necessary to produce product or service.
        Utilities are prioritized as first, second, and third. An example is such, acreage that has a 90% efficiency rate will be brought into production first. The 80% acreage is brought second. The 70% acreage is brought third.
        Management will allow the productive soil of the 1st utility land to produce as necessity incurs. The 2nd utility land of mixed sand, rocks, and location are brought into production next. The 3rd utility land or most arid, least fertile, and distant is brought in last to complete production tables when necessary.
        The coining of money is essential to economy. Money or currency is a wheel of trade, a note of value, and a receipt of some wealth. The cumbersomeness of barter gave ride for the need of currency. Theory states that there should some equal amount of wealth as gold for each unit of currency. This is the gold standard. No more units of currency should be minted than gold held in reserve.
        The modern system or flexible currency is based more on belief and faith in the soundness in the economics and solvency of a regime. Federal reserve banking controls the aggregates of money through open market operation. The sale of bonds introduces new money into the economy. The federal reserve sets the first interest rate. These government securities, reciprocated by the prime rate of bankers, secondary bond markets, and other markets shape the interest rates and value of currency.
        For simple purposes twenty five cents is needed to be held in reserve to print in reserve to print one new dollar. This money is yielded form private bank deposits. The private banking system is an extension of the federal reserve. Currency from other nationalities are held to stabilize money to cancel accounts of international trade.
This schema will be continued at later point in banking.
        The supply and demand curves necessitate the crucial axis of market economics. The negative slope is demand descending from the vertical axis. The positive from the axis itself is supply. The intersection of the two such slopes is the equilibrium of the specific interest exchange rate as the case may justify.
        The business cycle and similar theories developing bear a resemblance.

Innovation
Growth
Imitation
Saturation - Product Deterioration
Recession - Displacement of Labor
Depression
Innovation

      This schema can be applied to an individual producer and multiplier to the needs of economic analysis. A variation of this cycle posits a series of small recessions before the appearance of a complete depression.
        Innovation is when a new product or service comes to market, thus a positive gathering of resources for its production, yielding more prosperity, growth, and a standard of living. An expansion begins.
        The innovation is then met with imitators who copy the innovating good or service. This is deemed good. More resources are delivered to these innovations. This may form a sector of the economy or compliment an existing sector. Labor is attracted to an existing economy.
        As competition increases with imitation the market becomes saturated. The demand cannot bear the full weight of the productive forces. Quality is cut as well as other assumptions leading to lessening of costs. An unique facet is that competion and imitation can produce high quality that is worthy but competition and its price may be to high and the product esoteric. Electronics are a good example.
        As the saturation of markets increases competitors fail, debt increases in a chain reaction. Inflation grows. The currency is weakened either from the private or government side. Workers are displaced and idle. Hyperinflation occurs (possible).
        The government and private sector are unable to maintain sound economic practices. Unsound banking practices by both the government and private sectors have destabilized the economy. Inflation, hyperinflation, then eventual devaluation of the currency. Borrowers cannot repay debt, neither principle or interest. Runs on banks occur by customers, (primary lenders) to save their accounts. The government is or has printed too much currency. The unit devalues. The forces of the market react in a chain of business and banking failures and great unemployed.
        It is interesting to note in Malthusian variations the innovation may be negative. Sometimes an event that is manmade or natural may be the innovation. A war, disaster, hurricane, disease may have an innovative effect on the economy.
        The assumptions of economy are often exercised at the international, domestic, and the particular sector that is wished to be entered.
One who chooses to engage in free trade is a monopolistic competitor. This individual is permitted to gather resources and services to manufacture and produce product as long as no illegal activities are not engaged in facilitating a complete monopoly. One may consult the Sherman Antitrust laws.
        Monopolistic competition argues product differentiation which involves a systematic of ordering economic assumptions to the gathering the production of resources, the processes, manufacture of products, services, and the distribution of these goods, in an individual way in which one is allowed to take ownership and limited ownership by law of the mode of production.
        Product differentiation involves the distinct legal definition of inventions, processes of assembly, and naming of products, Distribution methods also may be privately owned.
Monopolistic competition allows individual corporate identity, individuals corporate products, individual advertisements, schema, trademarks, logos, as well as an array of service for the domestically and internationally.
        One can analyze a company for its skill in the components of economics. Monopolistic competition in areas of quality, production, marketing, services in product differentiation. A contemporary in the legal protection of these components as demonstrated by these theoretical concepts. Monopolistic competition involves an entrance into the market. Markets are discussed in different stages of historical development. In free trade analysis of the classical schools, economy exists in monopolistic competition in pure and perfect markets and short and long term equilibrium models. These models can be used in various manners to satisfy various thinking from a concept of the market to the overall development of the economy.

        In short term equilibrium demand is pure. Pure demand states that the demand curve for any assumption is unlimited. The demand curve will sustain a product and as much production as the competitor desires to produce and as well as many varieties of products and as many businesses desired. Perfect competition states that every monopolistic competitor shall have the same access to the aggregates of production as well as the distribution to the customer in the demand curve.
        The competitor will have access at the same price. An example is access to the paper, the ink, printing, and labor to print a book. All interested competitors are free to choose without fetters equally in the market for the possible resources, services, for the completion of the product. Likewise the distribution system is similarly equal in all fairness to customers in a pure format.
        Monopolistic competition in pure and perfect markets is the primary goal of emergent capitalistic systems. Deductions from moral assumptions toward the development of the monopolistic competition of the monopolistic competitors and market are completed in this spirit and with rules in free trade. It is to be noted that the assumption is that capital will choose the best rate of exchange in the development of both competition and market is integral to the creation of the market economy. This functional proposition is a reduction of GATT and NAFTA regimes.
        As an analogy of monopolistic competition and its implication other market phenomena can be argued from a model of gold points.
For our purposes we shall posit a community of ten competitors trading for gold. The gold is calculated in units, increments of one kilo. There are 100 hundred kilos. There are 100 gold points.
        All competitors are free to trade in monopolistic competition. As trading begins all ten competitors have a share of the stock of gold, each possessing x amount individually of the 100 hundred kilos. The trading begins. We shall say that five competitors are lesser in skill. They have become insolvent. Their existing shares points have come to be held by the five remaining competitors. Trading shall continue. In short one competitor comes to hold all 100 hundred kilos, all 100 hundred gold points. This has been achieved from the start of the endeavor by wisely calculating the difference of exchange rates in buying and selling gold. This competitor has achieved a pure monopoly.
        A simple model known as the circular flow model demonstrates the movement of currency. Individual persons are primary lenders. Banking institutions offer interest bearing accounts and services to attract the currency. The banking institutions then accumulate funds thus lending money to primary borrowers who are businesses. These large businesses convert loans into finished goods and services. Individuals work for these as well as being the final consumers of their goods and services.
        This simple model demonstrates a primary source of borrowing and lending. This is analogous to other more complex movements of currency and capital.
The laizze faire spirit of entrepreneurship is one that wishes to expand all possibilities of participation in the economy. In the world market one wishes to establish new marketing opportunities and penetrate into existing markets without cease.
        A competitor will usually devise a production table for one’s product. A small overview may be given here.
        A chart is composed listing the components of production leading to the assembly of a product. It shall regard the cost of a product. The cost of 10 components shall be incurred time and labor shall be computed. The traditional item considered is a lamp.
        The difference in cost between one finished product and the next unit is for marginal cost. Cost is more efficient generally as production increases. This represented as a negative slope from the y axis to the x axis.
        Marginal revenue is the profit generated from each increasing unit of production. This represented by a positive slope. The intersection of the level of the curves is the efficient level of production. Marginal revenue shall equal marginal cost.
        Total costs are calculated from the last item held in stock of the ink of the label. This analysis is integral to non-proportional outputs. It is used similarly to measure economics at greater macro-economic levels. Thus taking into consideration all natural resources, lands, minerals, wild animals, and sources of food (war economy and utility).
        Non-proportional outputs argues that components of production in a pure efficient manner from the first producer to the final consumer.
Similar thinking may be used to complete the best schema for warehousing, rotation of inventory, overproduction usually is the norm, bringing to market, distribution, store design, shelf location, and pricing to increase to sales.
        A competitor now choosing to exercise an economic assumption may need to finance his proposition. The competition for human and natural resources creates a demand curve. For all aggregates of economy.
        As previously mentioned, the equilibrium is the interest rate. There is a tendency for the equilibrium to rise or fall sue to a shift or movement from one or both curves. The tendency to return to the original position is known as the elasticity of interest rates.
When the demand curve becomes vertical and moves completely to the right full demand is achieved. When supply curves become horizontal and moves towards the x axis, there is 0 supply. The opposite movements are easily deductible.
        Similarly, the demand for capital in the form of lending is an interest rate. The federal reserve system through open market operations services the printing of money by selling debt, hence borrowing money from the public or other agencies of government by the sale of bonds.
        Bonds are the instruments that facilitate an investment of capital. Instrument can be securities, stock mortgages, long term cash accounts, policies and other financial notes.
The federal reserve is is the first mover of interest rates predicating the supply and demand curves for capital. Bond prices set the first rate of interest. Coupon bonds with flexible rates have been replaced by zero bonds that now rise to maturity at a fixed rate and then float at maturity. Savings bonds are an example. Bonds are negative valued as having a purchase rate of $ 95.50 with 4.5% being the remainder.
        Primary and secondary markets are found investments banks brokerage houses, and insurance writers are primary customers of bond purchases which are the safest instrument security to anchor operations.
        The maturation of bonds increases annually by compounding the interest rates daily and then based on the equilibrium held in balance for a minimum of a quarter year.
Bonds may be resold by the purchaser before the maturation of the of the note.
        The secondary markets are the resale market. The secondary bond market for the exchange of bonds and coupons. The original purchaser may wish to capitalize on his position by selling off to a secondary party in this market.
        Banks base their interest on the federal funds rate. This is the overnight rate that banks charge each other. In 1996 the 30 year bond rate was near 7%. The passbook rate was near 3.00% to 3.75 % for accounts of $1000 or less.
        Banks lend money to the government through purchases of bonds. Banks anchor their operations with instruments similar to bonds and re-lend at higher rates to their customers. High rates make lending untenable. a bell curve thus moving lower to a level where they cannot fall any farther.
        The amount of resources is strongly limited. There is interdependence between all rates of exchange domestically and internationally. There are various market sectors as technology, mining, medicine, and similar other industries that form economies and economies in the world market or economy.
        The crowding out of interest rates occurs when one specific rate comes to dominate closely related exchange rates. If this is inflationary it is facilitating a depression.
The unemployment Rate is similarly an initial factor in economic assumptions having an equilibrium rate born in market forces.
        Political economy allows for the holding of property. Bonds are only debt. In a liquidation bonds are to repaid first. They are backed by the level of government or firm that issues the bond. Stocks are certificates of ownership that bear dividends in performance.
        Currencies such as dollars, yens, and marks, are traded. This includes international lending as euro-dollars which are overnight lending. Commodities are sold at contract sales.
        In future trading as trading as oil ($18.00 per barrel 6-01 and $73.30 8-22-06) are sold contracted for delivery date. We will use January 1st. The purchaser is the long in the contract. The short is the purchaser of the contract future. This individual agrees to purchase the barrel of oil at the January 1st price.
        The two parties have legally bound themselves to the sale. The purchaser is usually brokered by an agent (brokerage), that will usually cover the position in trading of moderate sales if there is a failure in meeting the obligation. Failure to do so may result in legal penalties and suspension from trading. The long or short may sell of their position in the secondary market before the contract date. This may occur several times. The long hopes for the price to rise (+18.00). The short hopes for the price to fall (-18.00) to resell at greater profit.
        Short selling is also known as leveraged buying. The brokerage firm will usually offer a credit line for individuals to purchase futures with cash through loans (short), offering incentives to increase volume hence fees. They as already stated are usually willing to cover most positions themselves to hold or sell in their portfolios to attract more investment.
        It is to be noted that these firms may offer this service with the selling of shares. If a third party cannot be contracted, firms usually write a check keeping the stock in portfolios or selling off.
        The New York Stock Exchange - NYSE is the main American market where companies, the largest firms are listed with price, earnings, and other information. The Dow Jones Thirty is the weighted price in dollars of the performers of the market. The American Stock Exchange - ASE, Standard and Poor’s 500 - S&P 500, Wilshire Line are also smaller stock markets. The future market is located in Chicago.
        Trading is completed worldwide in similar stock markets and exchanges in various business centers. Recent Trends include mutual funds, pooling of money of which one owns a share of a total investment in a basket of stocks. Chief executive officers or CEO’s are being more often required to take salary in strict relationship to performance. These persons are offered futures at a certain price allowing for them to exercise their option to purchase the stock or future as it matures under guidelines on the contract date. The result is enormous compensation. Payment to CEO’s has reached 100 million dollars in the exercise of futures options.
        A macro concept of investment and political economy is the multiplier effect. This variable is the rate of consumption; currently near 18% per person, 18% per dollar on average for the population.
        In the taxing and redistribution of income the government taxes the public taking money out of the economy shrinking the money supply usually under some circumstance (budget needs). This will increase the demand fro money strengthening currency. Money held in the federal reserve does not earn interest.
        According to moral assumption, public policy is devised, a budget made to redistribute the taxes or money, the government paying itself and directing the funds to various programs and outlays. This is subsidization.

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