About simple economic reproduction and “Smith’s Enigma”

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Paata Leiashvily, (2013), About simple economic reproduction and "Smith's Enigma", World Economics Association (WEA) Conferences, No. 1 2013, The political economy of economic metrics, 28th January to 14th March, 2013

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Reproduction is infinitely renewable, continuous production process. This means that as a result of production its premises, conditions for continuing production are also reproduced. Without the understanding of this process, cannot be explained the functioning of economy, as an integrity, as a living organism. Neoclassical theory considers the production of goods as a unidirectional process from consumption of primary resources until production of final products. It gives a formal explanation of circular flow for does not explain the process of reproduction of primary resources. But from a purely economic viewpoint the reproduction is completely closed, circular process, in which all primary resources are reproduced through consumption of final products, where there are no non-renewable resources. An original model of a simple economic reproduction is proposed. The lack of a clear understanding of reproduction process caused significant weaknesses of calculation methods of the main macroeconomic indicators of the SNA 2008 (GDP, GNI, etc.). Adequate methodological basis of their calculation is given

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  • Olaf Schilgen says:

    I totally share the critics of the normal neoclassic theory which describes the economy as a circle. An Economy is not a circle flowing, an economy is the continious process of doing “labor” constantly without any break.

    QUOTE p.2: “The impression remains that the problem of circular flow (reproduction), like a problem of value, with which it is closely related, not finding a satisfactory solution, is gradually pushed to the periphery of scientific interests and is gradually “forgotten” by neoclassicists.”

    I would add that a endless reproduction or recycling is possible for the matter only. The part which is not possible ever to recycle or reuse or reproduce is low entropy energy. (usable high density energy)

    A steady circulating matter economy does need a continous flowing input of low entropy energy to keep its “stable” steady state.
    Which means that it can never be like a circle of the neoclassic theory without a infinite continous input of energy.
    If you stop putting low entrophy (useable) energy into that system – it stands still imediately.
    Without energy input, neoclassical circle theory will stop the very same moment the energy stops.

    QUOTE p.2: “According to Smith the value of each individual product is equal to the sum of incomes consisting of wage, profit and rent. He did not acknowledge the capital expenditures as the fourth component of price because they match to the value of previously created products of labor, which in turn is divided into the same three elements as the final product is.”

    I would add that energy (found in the earth and used by a machine) is the same as labor (delivered of a human body) used for replacing the humans body work.

    So, talking about “Physical, human, natural and public capital” always includes a given amount of energy necessary for creating these kind of capital.

    QUOTE p.16: “It turns out that aggregate supply is greater than aggregate demand,
    therefore, there is inevitable crises, etc. Here are clearly some unresolved theoretical problems.”

    I think the problem is that the measuring in money is not really “measuring”. It gives many fundamental failures and flaws in the “measuring” or valuing of goods – one flaw you described well.

    Supply greater than demand – without looking at the necessary input – is not the final answer of the description of the process. There are theoretical problems which are (in my opinion) caused by the wrong kind of measuring ignoring physical facts and laws.

    I would say that the Smith’s Enigma is mainly caused by using the wrong ruler for measuring the economy. The ruler “money” ignores the real world – which is not sufficient as long someone want to use the theory in the real world.

    I did not totally followed all mathematical analysis in your paper, but i would be interested in the same analysis based on physical measures. I think this would change the picture a bit. In physics there are nothing which can disappear. Everything is on the table and can be traced – and nothing moves or is moved without any reason and without energy – which is also true for the real world.