The complexity of Economics resolved!

The fact that the majority of people on earth, otherwise well educated, are unintiated as to economics is caused by the untransparent, uncomplete, and complex way the matter is described and explained in the accepted economics textbooks. There are several reasons why the accepted theory has failed. The many powercentres that influence the economic reality have been reduced to the functioning of free markets, the players / actors have been divided artificially in two groups that overlap, money has been given the pernicious extra role of a good, and only goods and services that can be given a price are in the picture.

With the recognizability of the daily reality being minimal in that theory it is not surprising that carpenters and bakers can predict crises as good / as bad as economists and that even politicians with a fair knowledge of the theory take completely wrong decisions.

The accepted economic theory describes the reality with a tunnel-vision; it looks easier to understand but it describes a virtual reality; and the simple solutions and decisions that can be derived thereof work only in that world, not in ours!

Here are the two main principles / elements to create the economic model to describe as close as possible and as complete as possible the reality. The insight and overview it delivers makes it accessible to the many and it is a better basis for decision taking.

  • The economic reality is a collection of economic entities. They all fulfil three roles: consuming, producing, and investing. The decisions in those entities are taken by people; either living in the entity (households) or functioning in all the other types of entities.
  • In the reality that all people experience there are not only transactions where goods and services are exchanged for money. There are flows for which we do not pay (air, sunlight, rainwater, vegetation, fauna…), goods and services we give to others (family members or even strangers) without expecting an immediate or postponed compensation, oneway moneyflows (subsidies, transfers), and lumpsum payments for the right to use packages of goods and services (taxes versus public infrastructure and services like protection, education, etc.).

These two starting-points can be applied to the usual grouping of economic entities: households, for-profit enterprises, not-for-profit enterprises, financial enterprises, public enterprises.

In the Economic Reality System (ERS – WWW.ECREALSYS.ORG) the Universal Enterprise Model (UEM) – the micro-economic model – describes the structure and functioning of all economic entities. They fit into the UEM with all their variations in size (financial weight) and accents / activities. The model does not show specific transactions but sorts of flows coming in and going out the entity.

The ERS uses two sets of schemes on the macro-economic level. The Economic Reality Model (ERM) shows the flows in the accepted way, easing the transition for people familiar with the accepted theory. The Input-Output set of schemes repeats that information in the proper ERS version; it is the more abstract but more correct way to show the economy on that level for the ultimately correct way to define the roles of an economic entity are: input – production – output.

In the ERS the functioning of markets is only one of many powercentres that influence the different flows. For that reason you will not find it in the ERS theory. Anybody can start the description of that intricate aspect of the economic-societal system and link it to the way ERS describes the reality.

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I see that in this latest version of your claims to understanding our social system that you are begining to use some of the words that I used in my previous comments. The economics words are like, entity (instead of agent or sector) , role (instead of function or operation) and system (instead of basis). But you still have a long way to go until your realization of our social system agrees with mine. The process inevitablly is one of logical analysis and thought. The reality is not something I can be completely sure of but how close we might get to it is.

Chester I have used the terms entity, role, and system from the beginning of the development of my model in the second half of the nineties. Entity and role were needed to replace the artificial and overlapping terms producer and consumer. Freemarket economics have too many loose ends while only using a subset of the transactions in the societal system. Because my model and schemes use flows instead of transactions the ERS has no loose ends and consequently it can rightly be called a system. The Dutch version was available on my website from end 2011 and the English version has been added in 2014.

According to my way of modeling our social system there are 6 and not 3 economics entities. They perform more than one role each, a total of 19 being distributed through the 6 entities. These are: Landlord, House-holder, Producer, Government, Capitalist and Finance Institution.These named entities are performing major and independent roles according to their names. So I find your 3 entities to be far too few to represent the whole of the big picture of our Macro-Economics Social System or MESS.You will find more informationabout them if you go to my SSRN working paper 2865571 "Einstein’s Criterion Applied to Logical Macroeconomics Modeling. So I have doubts about what you have offered being truly universal.