Friday, May 13, 2016

The Upward Spiral #2

I would like to elaborate upon my theory of the Upward Spiral, which I presented in a recent blog post. My previous description was flowery and illustrative, whereas here I will be more academic, clear, and concise.
According to GOLD economic theory, the paradigm of economics a trade where Mr. X creates goods or services Y, Mr. A creates goods or services B, and X trades Y to A in return for A trading B to X, and X then consumes B while A consumes Y. This trade, of one to one bartering of goods for goods, is the foundation upon which the system of money and prices is added to enable trades between three or more different people: A trades B to C for money, A buys Y from X for that same money, X then buys D from C using the money from A, etc. So, in a GOLD analysis of economics, you always follow the values and the trades, you do not "follow the money", in fact you ignore the money and you instead look at what was created, traded, and consumed.
Now let us consider each additional marginal unit of Y that can be created by X. Assume that A wants to use 3 Ys, and A owns 3 Bs. Assume that X has only produced 2 Ys. Now, consider the theoretical possibility that X could produce one more additional Y--a marginal unit of production. Obviously this one additional Y will enable one more trade, or one more unit of trading, to happen--one more Y can be traded for one more B. If X creates the one more Y, up to the limit of A's demand for Y, then one additional unit of trade happens. The result of one additional unit of trade is that A now has one more Y to consume. Assuming that A consumes goods and services to live his life and also consumes goods and services as raw materials to produce the value, the B, that it is A's job to create, this one additional consumable Y for A then contains one additional marginal unit of productive capacity to create B. That one marginal unit of Y that X decided to create then creates a marginal unit of additional B that A will create.
That B, which, for example, C and X want to consume, then creates a chain reaction within the pool of value, within the economy, with more production leading to still more production, which leads to even more production, in an upward spiral that can keep growing and growing. X's choice to invest the blood, sweat and tears to make one more Y, enables A to make one more B, because A consumes Y to make B, and A's new B might be consumed by C and enable C to make one more D, and so on, and so on.
According to GOLD XYAB theory, demand actually consists of the supply on the other side of the trade, in other words, the demand for the supply of Y is the supply of B, so increased supply will increase demand. The additional Y enables A to make more Bs, so more Bs will be created, hence more trades will happen of Y for B, and each marginal additional trade then gives X more B and A more Y, which increases X's capacity to make more Ys and likewise increases A's capacity to make more B's. Having one more Y enables A to make one more B to trade to X for X to make another Y tomorrow, because, in GOLD terms, the Y that A consumes is the means by which A creates B: part of the consumable value, part of the Y that A consumes, is necessarily the "seed stock" and raw materials and intermediate goods used to in the process of producing consumable end goods, in A's case, to make B, and any truly consumer value of Y that A consumes simply enables A to physically survive or to live a happy life, which then enables A as a worker to produce B.
In other words, part of Y is the means for A to make B, and A buys Y, so X's additional Y will lead to more B, which A will trade to X, who will use that additional B to make more Y, which he will sell to A, who will use it to make still more B, which will then be sold to X, who will make still more Y, and so on in an infinite upward spiral. Just one additional unit of newly created value, just one more Y made by Mr. X that otherwise would never have existed, can have an exponential growth effect in economics. Then, when you add Mr. C to the analysis, and everyone else who trades with X and A, and lots of different newly created values, and lots of trades of value for value, we can have an economic growth effect that is an exponent of exponents.
This is why every increased marginal unit of production, up to the limit of demand for that supply, increase the number of trades that can be made, which leads to economic growth, and makes the economy and everyone in it better off. Hence supply-side economics: maximize production, by libertarian policies that benefit the producers, which gives X the freedom to make more Y, and you maximize the amount of wealth in the economy. This summarizes Upward Spiral Theory, which I also call the principle of marginal productivity.

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