Summary

1

Quite simply, what is your book about?  

In literally one sentence, the book offers a cohesive theory of economic development of the Homo sapiens civilization.

Economic development is the pivotal feature of the civilization progress of the Homo sapiens, the dominant biological species on our planet. The superiority of the means of production invented by man is undoubted – this is the field of study of the natural sciences. Development of intraspecific relations in the context of economic development is the field of study of a social science called theoretical economics. Emergence of exchanges (deals) was the main stage in the development of intraspecific economic relations. At certain stage in their mental development, people recognized the ownership rights of other families and agreed to give up their property in return for something, instead of stealing or taking it away by force, as other inhabitants of the planet do. This prompted the emergence of money, and only Homo sapiens have this type of property. If one were to stop inventing artificial constructs (as the economists of the 18-19th centuries invented, for example, by endowing people with a supernatural power to create a mythical "value") and rely instead on the concept of exchanges (four main types of these), it is possible to superimpose the development of exchanges (deals) in the context of civilization development on the evolution of money (three main types of it). By doing this, we are able to identify all historical stages of economic development, and also describe the theoretical model for the next (seventh) stage, provisionally called “Perfectly Competitive Market" (or simply PCM). This is the main focus of this study.

 

What are its main themes and objectives?  

The most important topic is the description of the PCM model. The PCM design is quite simple, so most material goes over the shortcomings of the existing world economic system and offers critique of some well-known theories describing it.

There are two main objectives. The first is to initiate the research, followed by a broader public and policy maker interest in the transition to PCM.

The second objective is to lay ground for some new textbooks for college students. The author himself is purely a researcher, and he is hardly a good writer of these, since textbook writing requires quite different way of thinking.

While studying a limited variety of deals appears to be quite simple, a balance is required between the theoretical description of deals and the way deals (and the economic events accompanying them) happen in the real economy. Otherwise, it will be just an exciting but marginally useful mind exercise. I must also say that in reality the situation is even worse. With use of categories that do not exist in the real economy, it is not just little usefulness. Once these categories are endowed with fundamental significance, the resulting harm cannot be overestimated. The book examines in detail the most famous myths that have been actively used in theoretical economics in recent decades.

 

What are the conceptual and methodological issues that that form the basis for the book?

The conceptual pivot of this book is a description of the theoretical PCM model based on a unified economic theory.

I will try to clarify the basic methodological principles of the study (in addition to analyzing the evolution of deals concurrently with the evolution of money) in simple terms and using figurative comparisons.

First, I regard theoretical economics as a separate science and not a branch of philosophy, though I do not deny that philosophy played a leading role in shaping theoretical economics and majority of basic sciences. Although a philosophical term “category” is used to denote the basic concepts in the book, all the main categories underlying the research logic exist in the real economy. For instance, we may disagree whether a chair is good or bad, or its relative importance for us, or where to put it, but we must agree that it is still a chair. In the book, the Introduction provides a list of these main categories, and the explanations begin with the “property” category.

Second, theoretical economics is a social science. Natural sciences use the data collected with a help of instruments located either in laboratories or outside. This data is easy to formalize, store and transmit using computers, and is hard to imagine processing this data without using advanced mathematics. For the dominant people interactions such as economics and politics, one needs to extend the “laboratory” setting beyond the boundaries of academic institutions, i.e. stretch it into the world of people. The data that a researcher economist will collect there will be chiefly a non-formalized set of conditioned reflexes which will greatly depend on the degree of the immersion in the world of practical economics. However, this degree will be more dependent on the researchers mental balance (as people tend to act differently from what we expect) than on their mathematical skills. Despite the fact that the economy itself is based on digits (think prices), advanced mathematics is of little use. Oftentimes, it can be even harmful, when used to explain the fundamental relationships in the economy, by legalizing erroneous ideas or exaggerating the significance of platitudes. The only equations used in the book are purely economic ones, but they permeate the entire economy. We are talking about deals, defined as cases when owners transfer to each other equal (in their opinion) amounts of heterogeneous property.

Third, the book distinguishes consistently between theoretical economics and economic analytics. The latter is focused on the dynamics of indicators like GDP and business market capitalization, while theoreticians are trying to explain how it all works. Accordingly, the analysts use a lot of statistics in their complex work. It is difficult to argue that their work currently is much more in demand. However, if the most knowledgeable analyst is tasked, say, with reforming the real economy, it would be the same as hiring some football statistics expert as a head coach of a major league team. The theory of John Maynard Keynes is in my opinion the most significant achievement in the theoretical economics of the 20th century. At the same time, it promoted a rather unpleasant mixture of theory and analytics. Let me point out that we are not talking about a divide into “intellectuals” and "others". Given the relevance of analytics and the complexity of the existing financial system, the situation is quite the opposite, with the analytics field attracting the heavyweight intellectual forces. In fact, with a focus on studying tactical steps taken by the financial authorities (and that’s what the Keynesian and neoclassical school researchers are involved in now) it is almost impossible to sort out the nature of “tectonic plates” in the economy. The theory of Keynes has hindered the development of theoretical thought in recent decades in the same way as Marx's theory did a little earlier, albeit only in the socialist countries.

In this study, I am trying to show the importance of what I consider a very important theoretical category, namely “costs”. Statistics, as a set of static snapshots, are not used in the study. The emphasis is on the analysis of the movement of the main types of property, primarily the money.

 

What are you doing differently, or in a more innovative way, or better than existing books?

Given that our PCM model is one of a self-regulating market economy, the study gravitates towards the neoclassical theory and the ideas of the Austrian school. However, certain cornerstone elements of neoclassical theory are rejected as contradicting economic realities. There is also noticeable disagreement with the methods of reforming the existing system proposed by the Austrian school. At the same time, one can find common elements with the theories of J. M. Keynes and K. Marx, although there are even more differences with these major theories as they reserve a significant role for the state. As for the PCM model itself, in the literature I did not encounter any noticeable intersections with the model proper and, respectively, with my underlying theoretical approach that has this model as the only possible logical outcome. In part, this is caused by the unusual methodological approach described in the opening and in part it is stemming from my own 14 year entrepreneurial career.  Such an experience would have noticeably impacted anyone’s views.

To show the differences in the approach, I will briefly dwell on two main problems of the existing world economic system, called "paper capitalism" in the book, in contrast to its predecessor, respectively called "gold capitalism":

A) There is a lack of money in the economy. As a brief explanation, we can draw an analogy between the time when the industrial revolution warranted the abandonment of the gold standard in favour of paper money and the current leap in scientific and technological progress based on the development of computer technologies. Lack of money is the main reason for the excessive development of credit and credit/commodity surrogates (securities) in both stages of capitalism. As a result, high costs hold back economic growth and provoke crises. The problem is that extra money cannot simply be printed, as this will simply lead to inflation.

B) The inequality of currencies. Emergence of global currencies (US dollar and later the euro) has only temporarily solved the problem of gold missing from international trade. At present, the costs created by those gilded currencies significantly constrain the development of the world economy. They are also among the main causes of global economic crises.

The list of measures to help get rid of these problems is the essence of the study. Here I note that, in contrast to the main problems of "paper capitalism", summarized specifically for better understanding at a glance, all the measures proposed for the transition to PCM are unequivocally deduced by consistent application of our methodological approach described at the beginning of this item.

 

How is the book structured?

Chapter 1 begins with a deep dive into the payment system, since the financial system of the Perfectly Competitive Market (PCM) requires separating of the combined credit and payment system into its credit and payment components. This separation requires refining the system of "monetary" categories and definitions. In the course of this refinement we gradually begin to analyze important sections of the movement of money. In the analysis of the movement of money, we further refine the system of categories and definitions, analyzing some traditional misconceptions along the way, in order to separate fundamental relationships from false stereotypes. Toward the end of Chapter 1, our reasoning invokes the material in the subsequent chapters.

Chapter 2 is the largest in the book, and it is divided into two parts. The first part focuses on costs as the most important category of both practical and theoretical economy. Accordingly, the main theoretical task is to describe cost reduction, which is in turn divided into a system cost reduction and a technological cost reduction. Formation of theoretical systemic costs is macroeconomic in nature, while their reduction can take place either as evolution (inflation and deflation) or through a revolutionary restructuring of the legal system (change of formations). Technological cost reduction is always stemming from evolutionary processes, namely division of labour (1) and division of labour (2). In the production of goods, the division of labour (2) takes place in “microeconomics”, with inevitable consequences of expanding a firm, namely an increase in the costs of coordination of labor. This increase is counterbalanced by savings from division of labour (1), if the latter is not hindered by chronic accumulation of systemic costs. The second part of the chapter briefly describes the features of the PCM credit system, with a focus on exposing trade credits and securities as incompatible with the financial system of the new formation. This is the theoretical outline of the Chapter 2. Excursions into history, criticism of several famous theories and nuances of entrepreneurial practice are used extensively throughout the chapter to explain subtle points.

Chapter 3 discusses in general terms why and how to eliminate one obsolete feature of the existing formation, which has been introducing serious distortions into the modern world economy, namely the existence of global currencies (US dollar and euro). This is possible right now, as computer technology has matured enough. Under PCM, all national currencies will be equal and equidistant from each other, while circulation of foreign currencies within any national economy won’t be allowed.

Chapter 4 is a collection of separate theses connected to the main thread of the study in the first three chapters. Some of these theses have independent theoretical importance.

 
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