Looking at Markets Differently
We were all born into a world that was already shaped, before we got here. We didn’t have to figure everything out from scratch. Language and the monetary system, for example, were already here, before we got here. Our predecessors have left us the knowledge their legacies were based on, which we learn in our education programs, to keep the world spinning.
They have introduced us to a way to interpret life, which has held up for decades. Even though some of their concepts have even evolved into far more modern ones, the foundation has not changed. That it lasts for so long, shows that it’s a pretty solid construction. But should we go on like this forever?
Our environment is fragile. More fragile than our system treats it, with its “unstoppable” emission and scaling. Quick radical change is inevitable. That’s how I see it.
In the MacroFangs series, I explain the concept of the alternative economic system I have in mind, while discussing one of the fundaments of our current economic system. It’s an economic shift, which starts with a shift in economic interpretation.
For Whom is This Written?
To explain the economic shift I want to cause with D.O.C.I.S. International, I’ll use another change in economic interpretation, as my starting point. In The General Theory of Employment, Interest and Money, originally published in 1936, economist John Maynard Keynes, the founder of Keynesian economics, sheds new light on classical economics (Keynes 2017). The philosophy that was introduced in this masterpiece of him, is still taught in schools worldwide, today. It’s part of the foundation that determines how we perceive economics.
The General Theory of Employment, Interest and Money, was published to start a discussion about whether to accept or deny Keynes’ alternative view, meant as a way to settle difficulties of theory (Keynes 2017, pp. 3-5). The build-up of it and its content, will be the guideline of my explanation. It was addressed to other economists. About the involvement of the public, he said the following:
“At this stage of the argument, the general public, though welcome at the debate, are only eavesdroppers at an attempt by an economist to bring to an issue the deep divergences of opinion between fellow economists which have for the time being almost destroyed the practical influence of economic theory, and will, until they are resolved, continue to do so.”
(Keynes 2017, p. 3)
Having a Voice
Today, the general public has a louder voice than in the past. (Via the (social) media) it demands to be fully informed of any reforms or “big happenings”. I think that if there were a revolutionary debate going on that includes serious global action, they will surely want to know the ins and outs of the means of it and how it will influence their own living. But still, even today, I think he’s right about leaving the real discussion to those who really know economics, who are the authorities in this debate. If we’re discussing the Fangyist system, I hope I may be the chairwoman, though.
I’m not an economist. I’m a Fangyist. And I, too, want to start a serious large-scale intercontinental debate about the implementation of the system I want to introduce. A bit similar to Keynes’ revolutionary endeavor. “The general public”, however, of which I make part, in this context, should definitely be involved in my debate!
Just like there were disagreements between economists when Keynes wrote his gem, there seem to be disagreements between economists today. Currently, there’s a New-Keynesian movement and a New Classical movement (Keynes 2017, p.3; Preceden sine die). I hope that I can get both of them to agree to one thing: the Fangyist system works.
This is written for everyone. Literally everyone. I try to explain everything as simple as I can.
I just indirectly discussed the preface of The General Theory of Employment, Interest and Money with you. In the rest of the paragraphs of this article, we’ll discuss the first book of this magnum opus, called “Introduction”, and the principles of the Fangyist system. It has six books in total, so this (ini)mini series consists of six articles.
As I mentioned earlier: I’m not an economist. I hope you’ll learn something from the economic knowledge I state here. If you’re an expert: I would sooo love to hear your opinion(s) about my interpretation. Do you agree/disagree? I hope you’ll sign up for my website and join the discussion. May it evolve to something beyond this blog. I hope I’ll interview Graeynissis about this and other aspects of Project Nosce Te Ipsum, one day 🙂 .
Karl Marx was the first to speak of “the classical economists”, by which he meant David Ricardo, James Mill and their ancestors. Popular followers of “the classical school” are John Stuart Mill, Alfred Marshall, Francis Ysidro Edgeworth and “Professor Pigou”, to which Keynes often refers in his The General Theory. Before he changed his mind, he was a follower of the classical school as well (Keynes 2017).
The way the postulates of classical economics are interpreted, can have disastrous consequences, he says (Keynes 2017). I think he has this view because of what he has experienced after “The Roaring Twenties”. The classical school had no official justification for the sudden decrease in production and historic unemployment rates during the Great Depression. It was something their postulates didn’t hold up against.
Keynes defined the postulates of the classical theory of employment like this:
“1. The wage is equal to the marginal product of labour.”
(Keynes 2017, p. 11)
[Please don’t forget that he considered the postulates incorrect and that I fully agree with his reasons why]
In other words: the salary of the employee, is the value of the amount of product(s)/service(s) a single employee delivers. Basically that means that the employer pays you a salary worth a laptop, for example, and you earn him or her a laptop’s price worth in the company’s product(s)/service(s), in exchange. Right after mentioning the first postulate, he wrote that this is only so when there is fully equal pay (Keynes 2017).
During the Great Depression, salaries for the same jobs were lower than they were in the years before. Employers were struggling after the crisis that followed after the stock market crashed in 1929. (Also regular [(marketed) trading for consumers isn’t new]) people lost the savings they invested into shares (and back then it was normal for investors to borrow money to buy stock), so they consumed a lot less. That made companies earn less, so they weren’t able to pay their employees as “comfortably” as they used to. The Great Depression came with great insecurity (History 2009).
I hope that today, it’s not acceptable anymore to lend money to invest. Especially not for digital currencies… Personally, even though part of what I currently offer is e-books – though in the future this won’t be my main product at all – I think that giving things that are digital a monetary value, is something that is in great conflict with the fragility of nature. Because if the internet didn’t exist – the internet is not a direct product of nature – all of this extra value wouldn’t exist. It also wouldn’t be possible to spend the millions you’ve earned online, to buy products that require natural resources.
I believe that there should be two different types of money: one type of money to buy tangible/real-life things (and services), and one to buy intangible/digital things (and services). It’s included in the Fangyist system. Real Life Fangia & Digital Fangia seems like the right way to split our one Fangyist currency into two sub-currencies. But maybe splitting it into Tangible Fangia & Intangible Fangia, is even better for our environment. What do you prefer? Real Life Fangia (RLF) & Digital Fangia (DF), or Tangible Fangia (TF) & Intangible Fangia (IF)? When you receive a Fangyist salary, you may choose your own ratio. Fangia in general will be valued based on its comparison to the dollar, and the sub-currencies will be valued among Fangyists. The Fangyist system is a fully independent system.
The concept of wage will be completelyyyyy different from what we know today. I’ll get to that later. Let’s dive into the second (and last) postulate 🙂 .
Who Wants To Work?
I don’t want to spend the rest of my life slaving 9 – 5, and I believe no one should be (indirectly) forced to do such thing. It’s such a literal waste of (life) time. But it has been deep-rooted in our evolution. The world is kept spinning by great percentages of its population sacrificing great amounts of their time, to, in the end, have done something a computer could do by now, and at the end of their lives, they have never had the opportunity to truly get to know themselves and exist and grow, in a manner that money doesn’t influence their decision making. It saddens me. I want to see a world where that freedom does exist. That’s what the Fangyist system values the most. Employment will include a lot more freedom, if I succeed.
The second postulate is something of which even Keynes’ alternative to it, is incomparable to what Fangyism could do to the concept of a job as we know it. The second postulate is stated like this:
“2. The utility of the wage when a given volume of labour is employed is equal to the marginal disutility of that amount of employment.”
(Keynes 2017, p. 11)
Marginal disutility means the financial “inconvenience” (for the business) of adding that unit of labor. In the case of the postulate, but not in reality during the Great Depression (and today), this means that if a salary is lower than what the employee wants, he or she won’t work. During the financial crisis in 1929, a lot of people settled for lower salaries, so that shows that the equilibrium stated in the postulate, is incorrect.
I think that in today’s society, there’s a great(er) mix between financial needs. Some have so much money that they don’t know how and where to spend it, so they need more (suitable) opportunities to spend, and some are, like in 1929, settling for lower incomes (and jobs that are “below” their level of expertise), because they can’t find a suitable job. Like so there are more extremes in needs. By extremes, in this context, I mean (the frequency of) individual options in the mix of financial needs.
The Fangyist system offers a perfect balance for all extremes. Not only because your basic income is based on your personality (addictions not included, if they are part of your personality): working 9 – 5 will be unprofitable for both you and me, because as many jobs as possible will be computerized! Based on your profile, you can be requested to complete certain assignments, only human intelligence can solve, when that is needed. That’s how flexible your work hours are. The rest of your extra income, is based on what you contribute to society individually. The Fangyist system is all about sustainability, as you might have noticed.
[Every time I say “I think”, please feel free to confirm or deny my statements 🙂 . Of course, the same goes for everything else written here, but when I say “I think”, I’m not fully sure. Otherwise, I would state it as a fact.]
Bringing It All Together
In the classical doctrine, people assumed that “Supply creates its own Demand”. They spoke of profit, under the condition that the Aggregate Supply Function (Z) and the Aggregate Demand Function (D), were at equilibrium (Keynes 2017, p 27).
The aggregate supply price is the total paid for a certain amount of output, by a certain amount of employees. This translated to a function, looks like this:
Z = ϕ(N)
Z means the aggregate supply price, and N means the amount of employees (Keynes 2017, p. 26).
The Aggregate Demand Function, displays how much revenue a business “will” make, with a certain amount of employees. Its function looks like this:
D = f(N)
Where D is the amount of revenue and N is the amount of employees. Thus the equilibrium for “classical” profit is:
ϕ(N) = f(N)
So the prediction of profit was solely based on the amount of employees hired. That point Keynes called “the effective demand”, after which he stated a dozen reasons why that equilibrium and the assumption that “Supply creates its own Demand”, are incorrect (Keynes 2017, p. 27 – 34). He ends his explanation with this:
“It may well be that the classical theory represents the way in which we should like our Economy to behave. But to assume that it actually does so is to assume our difficulties away.”
(Keynes 2017, p. 34)
I consider that the sweet words of empathy, towards the classical economists that had to surrender to his (revolutionary) economic philosophy. If “Supply creates its own Demand”, and employment is all that matters, it would be normal to say: “I will make a profit when I have 40 employees.”
Maybe if you’re the only baker in a small deserted village, and you’re intuitively 100% certain that producing 100.000 breads is too much, it could make a little sense to base your profit on employment. (Assuming that the village won’t suddenly throw a “Project X”-style festival, where everyone wants bread.) But even then, employees shouldn’t get sick and be equally productive. It sounds crazy to my modern ears. If “Supply creates its own Demand”, I would have been a lot more successful already. (But I don’t mind, because all of this is just the beginning 🙂 .)
In the modern doctrine, the expected profit is based on the amount of products manufactured/services delivered. Generally, we speak of profit when the marginal revenue is equal to the marginal cost [“MR = MC”]. That’s because then, the difference between total revenue and total cost is the greatest, so the most “extra revenue” (thus profit) is earned [“ΠQ = TR – TC”] (Cartwright & Wallace 2016, pp. 301 – 344). It’s a lot better than the classical doctrine, I believe. But I also believe that it’s time to take the next step, and transition to a more evolutionary conviction.
We all know how wild markets can behave, and/or what bad publicity can do to the success of a business. Especially in this digital era: 10000 clients today and 500 tomorrow. (Or the other way around, of course! (That’s what you hear more often.)) No doctrine holds up against that unpredictability, currently. Marketing, public relations and the media, take over, where statistics and mathematics become limited, due to a non-algorithmic cause, I think.
I think “Supply creates its own Demand” is very incorrect. But I think that in today’s society, “Effective Marketing creates its own Demand” applies very well. And that includes the media’s comments on the stock market, which I perceive as indirect incentives given to the public, to buy or sell. Most success stories of a business are about marketing, and simultaneously the story itself is marketing. (Those stories do great at parties, if you can be touched by that sentiment.)
I believe that there are many reasons why “Effective Marketing creates its own Demand”, applies to the behavior of today’s consumer. With the way owning or wearing/using a brand can give someone a name. And free choice exists legally, but the options to choose from you are notified of, are determined by the advertising of the highest bidder and the algorithm based on your previous choices.
Consider demand something that is currently based on whether an individual likes the “look and feel” of a product or not, rather than what it’s actually made of (otherwise McDonalds wouldn’t exist). (And correct me if I’m truly wrong.) Production then (solely) depends on the conversion of the reach of quality advertising and indirect marketing. (I believe that that – including that I need much better graphics and audio – is the sole reason why I haven’t succeeded yet.) This is the market I’m a player in, and my intention is to shift it as a whole. It’s not what my former school book says, but I guess I’m looking at markets differently.
(R)evolution in this context
The goal of profit maximization exists in both the classical and the modern doctrine. Keynes has delivered a beautiful contribution to the improved definition of it, the way we know it today. But for the sake of our environment, I really think it’s time we start working for something else than ΠQ = TR – TC.
I consider it my duty to direct the reform of the system on this planet, before I leave it. I hope you’re interested in joining the debate, and that you’ll sign up for my newsletter, so that I can keep in touch with you.
The next part of this series will be released after the release of the newest episode of the Nosce Te Ipsum series. The Hypothesis [Nosce Te Ipsum I, Book I, Episode 5], will be released on the 30th of March. Part 2 of MacroFangs about Keynes, will be released on April 15. (I secretly hope to be able to start the debate before having released the second part.)
Please tell your friends about this! 😀
I love you
– xxx –
Cartwright, E. and Frank, R. H. (2016), Microeconomics and Behaviour 2nd (European) ed, London: McGraw-Hill Education
History (2009), Great Depression History [online], History, [Viewed on February 28], Available from: https://www.history.com/topics/great-depression/great-depression-history [this is not an “official source”, but I think it’s true, what the page says. If you think it’s not and you see “the facts” differently, please let me know 🙂 ]
Keynes, J.M. (2017), The General Theory of Employment, Interest & Money Wordsworth Editions Limited ed, Hertfordshire: Wordsworth Editions Limited
Preceden (sine die), History of Economics [online], Preceden, [Viewed on February 28], Available from: https://www.preceden.com/timelines/67774-history-of-economics [again, this is not an “official source”, but I think it’s legit]
The featured image I found on Pexels.com, originally uploaded on Pixabay.com I chose this image, because I feel it resembles the destruction of the environment, that comes with the incentive of maximizing scale.