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					        Economics


Foundations of alternative economics




          Hasan Gürak




          www.hasmendi.net

         hasmendi@gmail.com




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                                      There are numerous 'toothless sorcerers,
                                      masquerading as economics experts'.
                                                       K. Velupillai




                                 Foreword

Orthodox economic textbooks suggest a kind of economic world which can only
exist in fictitious markets where producers and consumers interact like robots,
relations are mechanical and assumptions utopian. Accordingly, all expositions
related to output, price and demand are, in substance, nothing but sophistry.

Basic concepts like “equilibrium”, or “given prices for producers” or “perfect
competition” might seem logical and consistent for orthodox academicians who
do not much care for the relevance of assumptions and/or transactions. Yet,
many economists are becoming more and more discontent with the sophistries of
orthodox, mainly neoclassical, doctrines. There is a globally growing interest and
demand for more alternative economic ideas and analyses which should help to
better comprehend the actual problems, help to make realistic analyses and
offer implementable remedies or forecasts.

It is a fact that orthodox economists were not even aware of the presence and
significance of “technological developments” until the “rediscovery” by Solow in
1950s. Who knows when they will “rediscover”, among other things, the fact that
prices are not and have never been “a given” for the producers in competitive
markets? It will continue to be a great waste of the efforts of capable minds, if
orthodox economists continue to defend this fictitious economic world and its
relationships.

The purpose of this book is to present some realistic alternative approaches to
the conventional unrealistic doctrines of orthodox economists. It is not claiming
to present totally realistic alternatives to orthodox doctrines. Shortcomings and
mistakes are inevitable and many ideas or models presented need deeper and
more refined analysis. Therefore, I hope that the alternative approaches
presented here shall not be rejected out of hand on purely ideological grounds.




                                                                                 1
                           Acknowledgement


This book contains many original approaches and analyses differing, from the
perspectives, and dominant “mainstream” theories regarding the well-known and
common subjects of economics. I have presented many non-traditional, non-
mainstream works before, which my Turkish colleagues, with the exception of
two, or three of them, have to say the least, preferred to overlook and denied
these works even a modicum of understanding which they generously provided
for the fallacies of the more mainstream economic theories. As a result, or
rather in response to them, I have decided to end my academic carrier with a
last book entitled “Economics” which you are now reading.

A full downloadable copy of the book “Economics” has been available for about a
year with the hope of provoking some response. Many academicians I know have
been informed about its presence and content. Many of the approaches and
analyses are so different from mainstream ideologies, that I was hoping, at
least, that the proponents of these mainstream economic ideologies would rush
to the defense of these, their ideologies, in the face of my challenging critique.
However, my expectations were in vain; there was no response at all. I was
disappointed to see that the prevailing attitude was one of total disregard.

While enduring and working in this unproductive and sterile atmosphere, there
was one notable exception the well known academician, Prof. Dr. Cihan Dura, who
not only cared enough to read the entire text with patience but also in order to
improve my work shared his valuable criticism with me . I have benefitted to
large extent from his views and proposals for which I am deeply grateful.

And a final word for the colleagues who/instead of making some small
contribution which I expected out of academic courtesy/ preferred to ignore my
work

: Thank you all…

                                                         Hasan Gürak

                                                       November - 2011




                                                                                2
                                        Contents


Foreword .............................................. Error! Bookmark not defined.ii

Teşekkür .............................................. Error! Bookmark not defined.iii

Part-1 ................................................. Error! Bookmark not defined.1

INTRODUCTION ..................................... Error! Bookmark not defined.1
  On scientific (!) economics ........................................ Error! Bookmark not defined.5
  In pursue of new searches ....................................... Error! Bookmark not defined.11
  Subject of economics ................................................Error! Bookmark not defined.12
    Micro-economics vs. macro-economics .............Error! Bookmark not defined.13
  Economics: Science or Ideology?............................Error! Bookmark not defined.15
    Social science vs. Natural science .....................Error! Bookmark not defined.16
  On qualified labor(-er) and technological progressError! Bookmark not defined.18
  Basic principle and the plan of study .....................Error! Bookmark not defined.21

Part-2 ............................................... Error! Bookmark not defined.23

SOME KEY CONCEPTS, DEFINITIONS AND ASSUMPTIONSError! Bookmark not defined
  Some Key Concepts and Assumptions ................... Error! Bookmark not defined.24
  Enterprise (firm) ....................................................... Error! Bookmark not defined.25
    Entrepreneur (the capital owner) ..................... Error! Bookmark not defined.26
  Science and technology ............................................ Error! Bookmark not defined.28
    Knowledge ............................................................... Error! Bookmark not defined.28
    Science or scientific knowledge ........................ Error! Bookmark not defined.29
    Productive Knowledge (Technology) ................. Error! Bookmark not defined.29
    Accumulation of knowledge .................................Error! Bookmark not defined.31
  Importance of knowledge (technology) for enterprisesError! Bookmark not defined.32
  Products (goods and services) ................................ Error! Bookmark not defined.35
    Commodities - Goods ............................................ Error! Bookmark not defined.36
    Service .................................................................... Error! Bookmark not defined.36
  Inputs of production................................................. Error! Bookmark not defined.37
    “Productive” factor(s).......................................... Error! Bookmark not defined.38
    Nature: a “productive” factor ........................... Error! Bookmark not defined.38
    Labor(-er): “a productive” production factor Error! Bookmark not defined.40
    Capital: a “productive” factor? .......................... Error! Bookmark not defined.43
  Other “factors of production” ............................... Error! Bookmark not defined.47


                                                                                              3
     Human capital: labor(er) or capital? ................. Error! Bookmark not defined.48
     Human capital and labor(er) without mental facultiesError! Bookmark not defined.49
   Competition ................................................................. Error! Bookmark not defined.49
   Increasing returns to capacity .............................. Error! Bookmark not defined.52
   On institutions ........................................................... Error! Bookmark not defined.52
   In summary ................................................................. Error! Bookmark not defined.53

Part-3 ............................................... Error! Bookmark not defined.54

PRODUCTION (Supply) ............................. Error! Bookmark not defined.54
  Technology – (production knowledge) ................... Error! Bookmark not defined.55
  Technology, labor-inputs and profit ..................... Error! Bookmark not defined.58
     Profit rate – cost relation with given production capacityError! Bookmark not defined.6
  Technological progress and output........................ Error! Bookmark not defined.65
     Technological productivity growth ................... Error! Bookmark not defined.66
  Final wors..................................................................... Error! Bookmark not defined.68

Part-4 ............................................... Error! Bookmark not defined.69

PRICE ................................................ Error! Bookmark not defined.69
  Short-run price analysis:                technology “given”Error! Bookmark not defined.70
    Production Price (PP) - Market Price (MP) .......Error! Bookmark not defined.71
  Impact of technological changes on price ........... Error! Bookmark not defined.82
    Given product, “new” production process and priceError! Bookmark not defined.82
    “New” production process in service sector and priceError! Bookmark not defined.88
    New products and long-run price ...................... Error! Bookmark not defined.89
  Concluding remarks ....................................................Error! Bookmark not defined.91

Part-5 ............................................... Error! Bookmark not defined.92

DEMAND ............................................ Error! Bookmark not defined.92
     Consumer/End-user .............................................. Error! Bookmark not defined.93
     Demand (needs and desires) .............................. Error! Bookmark not defined.93
     Utility ...................................................................... Error! Bookmark not defined.94
     Short-run demand function ................................ Error! Bookmark not defined.94
     Basic factors determining individual demand Error! Bookmark not defined.97
     Basic factors determining enterprise demandError! Bookmark not defined.102
     Basic factors determining institutional demandError! Bookmark not defined.102
  Short-run individual demand, production capacity & profits: technology
  “given”......................................................................... Error! Bookmark not defined.103
  Long-run individual demand and technological innovationsError! Bookmark not defined.104
     Cost-reducing technological progress & individual demand-(given product)Error! Bookmar
     Cost-reducing technology and individual demand: “given product”Error! Bookmark not de

                                                                                                4
      “New” products and individual demand .......... Error! Bookmark not defined.107
      Income and individual demand ......................... Error! Bookmark not defined.108
      Equilibrium: a utopian or scientific concept? Error! Bookmark not defined.109
   Final words ................................................................. Error! Bookmark not defined.111

Part-6 .............................................. Error! Bookmark not defined.112

FUNCTIONAL INCOME DISTRIBUTION ....... Error! Bookmark not defined.112
  An ideal income distribution .................................. Error! Bookmark not defined.113
     Pareto optimum..................................................... Error! Bookmark not defined.113
     Optimum functional income distribution ........ Error! Bookmark not defined.115
  1- Functional income distribution: “given” technologyError! Bookmark not defined.118
  2- “Efficiency (micro-productivity) growth” & income distributionError! Bookmark not def
  3- “Technological (macro-) productivity growth” & income distributionError! Bookmark not
     Case-1 Labor(-er)-saving technological progressError! Bookmark not defined.122
     Case-2 Input-saving technological progressError! Bookmark not defined.122
     Case-3 Output increasing technological progressError! Bookmark not defined.123
     4- Technological imperfections and global income distributionError! Bookmark not defin
  Final remarks ............................................................ Error! Bookmark not defined.127

Part-7 .............................................. Error! Bookmark not defined.129

GROWTH (INCREASED PRODUCTIVITY) ....... Error! Bookmark not defined.129
     Productivity (V) ................................................... Error! Bookmark not defined.130
     Quantitative analysis of “productivity”:......... Error! Bookmark not defined.131
     Value analysis of “productivity”....................... Error! Bookmark not defined.133
     Optimum productivity ........................................ Error! Bookmark not defined.135
  “Productivity growth” (economic growth) .......... Error! Bookmark not defined.135
     Growth-1: Efficiency (micro-productivity) increaseError! Bookmark not defined.136
     Growth-2: Technological (macro) productivity growth-Long-runError! Bookmark not defi
     Growth-3: Horizontal investments & growth Error! Bookmark not defined.145
     Cross-country productivity comparison......... Error! Bookmark not defined.146
  Concluding remarks ................................................. Error! Bookmark not defined.146

Part-8 .............................................. Error! Bookmark not defined.148

GLOBAL - INTERNATIONAL TRADE ........... Error! Bookmark not defined.148
  Concept confusion.................................................... Error! Bookmark not defined.148
  Global (international) trade and theories .......... Error! Bookmark not defined.150
    On trade theories ................................................ Error! Bookmark not defined.151
  Major determinants of global trade ................... Error! Bookmark not defined.154
    1- Price and trade ............................................... Error! Bookmark not defined.154
    2- Preferences for diverse qualities-designsError! Bookmark not defined.155

                                                                                                          5
     3- Impact of income/wealth level on global tradeError! Bookmark not defined.155
   Types of global trade ............................................. Error! Bookmark not defined.156
     1- Trade between developed countries ......... Error! Bookmark not defined.156
     2- Global trade between developed & developing countriesError! Bookmark not defined.
     3- Global trade between developing countriesError! Bookmark not defined.159
     4- Intra-firm global trade................................ Error! Bookmark not defined.160
   Some critiques of “liberal” trade policies ......... Error! Bookmark not defined.166
   Global competition ................................................... Error! Bookmark not defined.167
     Global competition and FDIs ............................ Error! Bookmark not defined.169
   Global trade, and convergence of wages and pricesError! Bookmark not defined.170
   Concluding remarks .................................................. Error! Bookmark not defined.171

Part-9 .............................................. Error! Bookmark not defined.174

GLOBAL TECHNOLOGY (KNOWLEDGE) TRANSFERError! Bookmark not defined.174
  Economic Growth and Development..................... Error! Bookmark not defined.176
  Technology and technological progress .............. Error! Bookmark not defined.177
  Transfer of Technology ......................................... Error! Bookmark not defined.178
    Channels of the Transfer of Technology ...... Error! Bookmark not defined.179
    What should be the price? ............................... Error! Bookmark not defined.180
  Hidden costs of technology transfer .................. Error! Bookmark not defined.181
    “Package Deals” with Restrictive Clauses ..... Error! Bookmark not defined.183
  Summary of the Findings ....................................... Error! Bookmark not defined.190
    Some Policy Proposals ......................................... Error! Bookmark not defined.191

Part-10 ............................................. Error! Bookmark not defined.199

INSTITUTIONS & ECONOMICS ................ Error! Bookmark not defined.199
  Institutional economics & institutional structureError! Bookmark not defined.200
    Markets as institutions ..................................... Error! Bookmark not defined.201
    Different countries, different institutions Error! Bookmark not defined.203
    Role of institutions in retrospect .................. Error! Bookmark not defined.206
    What should be the long-run targets of institutions?Error! Bookmark not defined.209
    Some concluding remarks .................................. Error! Bookmark not defined.211

Part-11 ............................................. Error! Bookmark not defined.213

WHERE IS THE GLOBAL ECONOMY HEADING?Error! Bookmark not defined.213
 Global production ..................................................... Error! Bookmark not defined.216
   Do FDIs help to increase global competition?Error! Bookmark not defined.221
 Global income distribution .................................... Error! Bookmark not defined.223
 Some proposals for future ................................... Error! Bookmark not defined.228
   Local (intra-country) measure ........................ Error! Bookmark not defined.228

                                                                                                  6
    Some global propositions .................................. Error! Bookmark not defined.231
  Appendix-A .............................................................. Error! Bookmark not defined.235
  Appendix-B ............................................................... Error! Bookmark not defined.236

BIBLIOGRAPHY .................................... Error! Bookmark not defined.238




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