Treated topics : Economic development, Wage, Profit, Margin of profit, Price, Agregate demant, National Product, Unemployment, Unions, Currency, Common market, Scale economies, Marginal productivity.
Towards a Reformulation
of the Contemporary Economics
(The Theory of the Optimal Distribution of the Income)
Abstract
Theory on economic development, the determination of real wages for workers, the level of employment, the distribution of national income, and the determination of market prices. Critique of the contemporary economy and proposal of an alternate economic theory.
The book constitutes a critique of existing economic theory and the proposal of a new model as an alternative.
It explains the causes of economic underdevelopment as resulting from the application of flawed macro and micro economic theories. As long as we persist in the application of the contemporary economic theory, we will not be able to defeat underdevelopment, since this theory asserts that increasing the wages of workers will lead to unemployment and a drop in production. In the book we show that wage increases result in greater levels of production and of employment. In addition, we show that macro and micro economic theories are based on invalid premises such as that of the law of the decreasing marginal product, the Keynesian investment multiplier, the existence of a demand of money for transactions, and a demand of money for liquidity, among others.
As far as the critique that this theory makes towards contemporary economics, we can say more specifically that it questions the basic tenets on which macro and micro economics have been founded. With respect to micro-economics, arguments are presented that question the law of the decreasing marginal product and the law of the decreasing marginal utility that constitute the pillars or bases on which current micro-economic theory rests. It is parting from these two premises that micro-economics derives the market function of supply and demand and through this, the determination of price. We question then, the determination of price by the impersonal forces of supply and demand in the marketplace and instead offer a model in which price is determined, among other factors, by the business manager [entrepeneur].
With regard to the macroeconomics the arguments are presented to question the multiplier of the investment of the keynesian theory based on the marginal propensity to consume, when settling down that the multiplier depends on the profit margin of the companies. We put forth the argument demonstrating that the demand of money for liquidity or for speculation according to Keynesian theory, which constitutes another pillar of current economic theory, is also questionable. In its place we present a model in which the level of production and employment depends on the level of real wages of the workers and where the multiplier of the economy is based on a relation between the value of needs and the reciprocates of the profit margin of the companies or firms.
Throughout the book solid arguments are made to demonstrate that the level of production and employment can be improved by increasing the real wages of the workers. In other words, we demonstrate that the distribution of income produces increases in the level of production and in employment. I addition, we present equally overwhelming arguments that demonstrate that the absolute earnings of businesses will increase in spite of the increase in wages or redistribution of income.
We believe this theory will be very popular both in academia as well as among the general public. Its usefulness to political parties that wish to win the elections in their countries is unquestionable. This is a theory that allows politicians to inform the great mass of workers that the economic situation of the country can be improved by increasing their wages and that at the same time will allow them to tell entrepreneurs that their profit will increase.
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Economic development depends on two fundamental factors: a psycho-social factor that has to do with the development and formation of attitudes in people and, specifically, attitudes that favor economic development; and an economic factor that involves the relationship between the elements that make-up the market system. The psycho-social aspects determine about 30 to 40 percent of economic development and the economic aspects the remaining 60 to 70 percent. The psycho-social aspects are discussed in the book: "Towards a Reformulation of Contemporary Psychology: The Theory of the Senergicons" published by Editorial Trillas and the economics aspects are discussed in the present work.