The Society of Lapsed Economists exists to replace the orthodox Market Theory of Value with the General Theory of Value.   Join in by establishing your own pbwiki and add a prefix or suffix to lapsedeconomics.  Feel free to use any part of the site other than the name of the society and please acknowledge any help gained.  Articles will be posted from time to time.

The first is:

'Calculus Economus'

The History of Economic Thought

The second is:

The Fable of the Monk

Third is:

Decartes

An apology

Fourth is:

Rationing Water

Fifth is:

Banks and Plato

Sixth is:

Sorry Mr Descartes

More articles will be posted regularly from January 2008

CALCULUS ECONOMUS and THE HISTORY OF ECONOMIC THOUGHT

For a reader unfamiliar with calculus it is sufficient to know that the first derivative is the rate of change and the second derivative is the rate of change of the rate of change.

Calculus Economus had two names because he often thought of two things at the one time.

One day he was in the bath thinking about the temperature of the water and the price of apples. He noted that both were falling.

He decided to pour in more hot water and to buy an extra apple: seven instead of his usual six.

He believed, correctly, that the bath water would get hotter if the added water was hotter than what was in the bath. As far as the apples were concerned he reckoned on the extra apple lowering the average pleasure of his apples, but in total the pleasure would rise by an amount he called the ‘extra value’.

Calculus then made up the rule of averages:

The average increases if an additional unit is of greater magnitude than the average and it (the average) falls if it (the extra unit) is of lesser magnitude.

Because he thought he was the first to derive the rule he called it the first derivative.   He decided by the way to add the seventh apple to his shopping list because as one of seven at the price it was fair value, an eighth he thought would not be so.

Then he wondered if another extra pail of water would affect the temperature. He decided that so long as the extra pail was hotter than the current average the temperature would increase. In respect of the apples he asked a further question.

‘Would the difference in value between seven and eight apples be more or less than the difference between six and seven?’   

He thought it to be of little consequence and impossible to measure and because it was his second thought on the matter he called it the second derivative.

He wrote down his thoughts in the cover of a bible.

Many years later, another man with two names read the notes. His name was Isaac Newton. He thought long and hard about differences and averages and invented the mathematics of changes in value and called it ‘calculus’ after the man in the bath.

(He also kept an eye on apples and discovered gravity! But that is another story.)

Instead of ‘extra value’ he used the term ‘marginal utility’

Then there was a huge war and after it was over some men decided that the planning of the reconstruction of factories and offices would be organised by people called ‘economists’ and ‘Economics’ was invented.

One economist read about calculus and convinced his peers that to be logical a buyer should buy the number of items such as apples so that the extra apple, that was exactly the same as all the other apples in the batch, was just worth buying.   By mistake he called his rule the law of Diminishing Marginal Utility’. He should have called it the Law of Diminishing Average Utility at the Margin! Alas, millions of students repeated the mistake.

 One even said that by adding together each of the individual marginal utilities you would have a value far in excess of the total derived by multiplying the marginal utility of the final item by the number of items.   He called it ‘Consumer Surplus’. It is of course a nonsense, albeit on oft repeated nonsense.

Caught up in the delusion they created, one economist chanted,

                        ‘What is the economic problem?’

The others responded,

                        ‘To satisfy unlimited wants with limited resources!’

And soon the world echoed the catechism.

‘Oh dear what folly’, said a lone voice, ‘time will come when we run out of resources and we will still be unsatisfied!’

‘Better’, he said, ‘to respond with this’.

‘The economic problem is to find ways improve life through activities that bring mutual benefits to man and the natural environment using the wisdom and skills of the human population’.

A whisper was heard, ‘That may mean we should measure economic diversity: not growth. Perhaps we should also forget questions about how much we can make and concentrate on what we need for a good life.’

Many scoffed: some listened. 

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