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Making Macroeconomics an Exact Science

Today macroeconomics is treated as inexact, because at a first look it appears to be very complex. But if we take aggregates of all the various activities (no matter who or what performs them) and then idealize them so that each kind is of only one size, we find that to cover the whole social system of a country (excluding foreign trade) it takes only 19 mutual flows of money verses goods, services, valuable documents etc. These double flows pass between only 6 kinds of role-playing entities.

This model has not been properly presented in the past. The simpler versions that have were inexact and unsatisfactory and this is the reason for the non-scientific confusion and failure for good understanding. This model it is unique in being the first to include all 3 of Adam Smith's (1767 !) three factors of production (Land, Labour and Capital) with their returns (Ground-Rent, Wages and Interest/Dividends, respectively.

A diagram of this model may be viewed in wikipedia, commons, macroeconomics as: DiagFuncMacroSyst.pdf which needs enlargement to get all of the aspects included in one's view, explaination and teaching process.

With this model the various parts and activities of the big picture can be properly identified and defined. Subsequently by analysis, the way the system works can be properly calculated and illustrated.

It is done by the mathematics that was devised by Noble lauriate Walesley Leontief (who applied it to the production sector only), when he invented and introduced "Input-Output" matrices. This short-hand method of modelling replaces the above-mentioned block-and-flow picture and it enables one to really get to grips with what is actually going on in our social system. It is the topology of the matrix which provides the key to this. The math is not hard and is suitable for high school students who have grasped the most basic understanding of square matrices.

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    David ChesterDavid Chester shared this idea  ·   ·  Admin →

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      • Fergus Ray MurrayFergus Ray Murray commented  · 

        This one seems incongruous, to me. I'd want to see considerable empirical evidence before taking seriously any claims for economics as either exact OR scientific, let alone that it should be taught as such in schools.

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