Chapter 2: Kinetic
Principles of the
1. Theoretical Composition of Choe's Economics
2. Kinetic Theory of Price
(A) what is Price?
(B) Price is Synthesis
(C) Principle of Price-Chaos
(D) Principle of Price-Fluctuation
(E) Principle of Demand and Supply
(F) Evolution of Price-Fluctuation Principle
(G) Principle of Price-Determination
(H) Stock Market and Price-Determination Principle
(I) Reconsideration of Consumption, Income Distribution, Production, Products Distribution, and Markets according to Choe's Economics
3. Kinetic Theory of Income
(A) Composition of Income Theories and Meaning of GDP
(B) Kinetic Principle of Income-Chaos
(C) Kinetic Principle of Income-Fluctuation
(D) Kinetic Principle of Income-Determination
(E) The Way to Enhance Growth Potential and International Competitiveness according to Income-Determination Principle
4. Kinetic Theory of Money and Banking
(A) Preparation for Kinetic Theory of Money and Banking
(B) Principle of Money-Fluctuation
(C) Principle of Money-Determination
(D) Principle of Money-Chaos
(E) Deflation and Reform of Price Indices
5. Kinetic Theory of International Trade and Exchange Rate
(A) Comprehending the Economy and Economics
(B) International Trade and Exchange-Rate
(C) Importance of Exchange-Rate
(D) Mechanism of Exchange-Rate Fluctuation
(E) Representative Failures of Exchange-Rate Policy
(F) Transition of Exchange-Rate Policy after the World War
6. Kinetic Theory of Economic System
(A) the Economy and System Theory
(B) Environment and Competitor of a Economic System
(C) System Culture: Money making and Economic Development
(D) Principle of System-Fluctuation
(E) Growth Theory in the Current Economics and System-Fluctuation Principle
(F) Turnover of Economic Supremacy and System-Fluctuation Principle
7. Synthesizing Path of Kinetic Principles
(A) Synthesizing Path of Economic Phenomena
(B) Synthesizing Path of Income Principles
(C) Synthesizing Path of Price Principles
1. Theoretical Composition of
As we have seen, the economy consists of four subjects and three markets and all the economic phenomena produced by the economy are synthetic ones. They are synthesized by three primary phenomena such as price, income and system. All the price, income and system are also synthesized by the respective phenomena created by chaos principle, fluctuation principle and decision principle. Then, of course, the theoretical system should be reconstructed in accordance with this logic. In other words, the economy should be accepted as a whole and the theoretical framework of economics should be newly constructed by classifying into three primary categories: the theory of price, the theory of income, and the theory of system. And the complete theory could be established when each theory of all the primary categories avoids mutual confliction with the others theoretically and politically.
The mainstream economics also distinguishes between microeconomics and macroeconomics to explain price phenomena and income phenomena, but neither theory has any correlation with each other. Rather, they conflict almost always theoretically and politically with each other. Microeconomics which is based on general equilibrium maintains the viewpoint that market function should be respected, but macroeconomics based on Keynesian economics maintains the viewpoint that the economy should be managed by government. Thus, they conflict with each other theoretically and politically, which is crucial evidence that the mainstream economics has not yet grasped the fact that economic phenomena are synthetic ones. Austrian and monetarism schools are not different. On this account, it is almost impossible for the mainstream economics to explain scientifically all the phenomena which are happening in the real economy. Figuratively speaking, if we can not distinguish the earth's motion by the revolution and the rotation, it is impossible for us to explain scientifically the various natural phenomena which are happening on the earth.
Moreover, the mainstream economics makes no mention on the system phenomenon. It has only been implied in our consciousness that the market has solved all the problems and that the market-based system is superior to any other systems which have ever existed. The mainstream economics maintains this insistence based on the perfect competition and the general equilibrium that can not exist in reality. Of course, the economics of the Marxian school, institutional school and historical school seems interested in the system, but it is merely an independent theory, not a part of economic paradigm.
Choe’s Economics embraces almost all the academic achievements of various economic schools by integrating all these theories into a paradigm. In addition, Choe’s economics forms a unified theoretical system so that price theory, income theory and system theory do not conflict theoretically and politically with each other. Through this integration of several economic schools, all the economics are unified and the capitalism and socialism are completely dismantled. It is evolving the paradigm of economics itself. From now on, let's look at the theoretical structure of Choe's economics.
As shown in the picture below, Choe's economics has a multi-layered and complex theoretical structure composed of three-floor building and each floor is divided into three rooms. There are the price theory on the first floor, the income theory on the second floor and the system theory on the third floor. Each floor is divided into three rooms: decision principle, fluctuation principle and chaos principle. And the room of price decision principle on the first floor and the room of income fluctuation principle on the second floor are opened to make up one room and share a theoretical system with each other. The room of income determination principle on the second floor and the room of system fluctuation principle on the third floor are also made up one room and share a theoretical system. In other words, income decision theory and system fluctuation theory as well as price decision theory and income fluctuation theory has one theoretical system. Choe’s economics has such a unique theoretical structure that price theory, income theory and system theory coexist without conflict or omission.
Theoretical framework of Choe’s economics
System chaos principle
System fluctuation principle
System decision principle
Income chaos principle
Income fluctuation principle
Income decision principle
Price chaos principle
Price fluctuation principle
Price decision principle
The theoretical framework of Choe’s economics basically composed of three floors and three rooms as mentioned above, however there are special needs for further consideration. Monetary finance and international trade are the fields to be considered further. It is theoretically correct to include them into the theories of price and income, but it is necessary to examine separately because they have very independent characteristics. And they have a direct effect on income as well as price as follows.
The theory of monetary finance has a direct relation with the theory of price, and also directly affects the theory of income. The theory of international trade directly influences the theories of price, income and system as well as it is also influenced by them. Therefore, separating the theories of monetary finance and international trade from the theories of price and income is easy for us to understand and it is also convenient to read the economy accurately. First of all, each theory of monetary finance and international trade forms a independent theory system, each having a great influence on price, income and system, and interacting with each other under the influence of price, income and system.
How would it be desirable to describe Choe's economics with such a complex theoretical structure? Which theory of the theoretical system closely linked to each other should be explained first? Theoretically speaking, it is reasonable to be explained first the income theory which is located in the middle layer and the starting point of explanation is the income fluctuation principle among income principles. Since the principle of income fluctuation shares the room of theoretical frame with the principle of price decision, while the development of logic can flow naturally into the price theory from the income theory and can flow naturally into the principle of system fluctuation which shares the room of theoretical frame with the principle of income decision.
In reality, the economic phenomena created by the income theory, that is, economic fluctuations are more important than anything else in our economic life especially for the companies and the national economy. It is difficult for a company to overcome competition with other companies, if investment is not made when the economy rises and investment is made too much when the economy falls. In the management of the national economy, it is very important for a government to read accurately the economic fluctuations which play a very important role in setting up and implementing economic policies, while the economic cycle managed by the government has a decisive influence on all economic subjects. In fact, most of the economic policies that have ignored the economic cycle have failed. This issue will be discussed in detail at the end of this book, dealing with ‘diagnosis and forecasting of the economy’.
Of course, macroeconomics has been born as a result of the influence of Keynes and some textbooks of economics have described income theory first. However, since the economic stimulus by fiscal policy have failed and the economic prospects of various theoretical models based on the macroeconomics have been revealed inaccurate, it has lost its confidence gradually. It looks like that macroeconomics has existed only in textbooks. In recent years, monetarism which inherited the traditional viewpoint of the neoclassical economics has attracted worldwide attentions with the prolonged economic prosperity of United States and the status of income theory, as a result, has become weaker than ever.
Even with that circumstances, the macroeconomic approach to the economy is still important. Indeed, various macroeconomic indicators have been widely used and new ones are constantly being developed while existing ones are being improved. In this sense, it is certain that Keynesian theory has brought about a partial revolution in economics. Although the complete revolution of economics failed both theoretically and politically, the fact that economic interest is shifted to macro view from micro view is highly appreciated.
For reference, There were some intellects who had macro view around 1700s such as William Petty(1623-1687) and Gregory King(1648-1712) who represented mercantilist as well as François Quesnay(1694-1774) and Robert Jaques Turgot(1727-1781) who represented physiocrat. However, the micro view took the initiative of the economics after the classical economics emerged. This trend has changed as the interest in economic fluctuations has increased since the Great Depressions of the mid-1870s and the 1930s. In particular, after World War II when the [General Theory] of Keynes began to gain its spotlight, the macroeconomic approach was dominant in the academic circles.
Even today, economics is looking for the ways to capture the flow of the economy more accurately than ever. Just only there is no satisfactory theoretical model yet. The reason for this is that various economic forecasting models, of course, have not been backed up by consistent theories. However Choe’s economics differs from the current economics in the fact that it reads the flow of the economy much more accurately than others because it is back up fully by the consistent theories.
However, it is not easy to understand the theory of income unless the theory of price are understood. And the theory of price is relatively simple and easy to understand, while the theory of income is relatively complicated and difficult. It is better to look at price theory first to avoid unnecessary misunderstandings because Choe’s economics is different from the mainstream economics. Unlike the mainstream economics, the price theory of Choe’s economics is relatively simple and it is convenient to deal with it first.
One more thing to point out is that Choe's economics is not complete. Each chaos principle of price theory, income theory, monetary finance theory, international trade theory and system theory has not yet found the scientific law which originates chaos phenomena. I have confirmed the existence of the phenomena represented by the chaos principle and that it plays an important role in synthesizing economic phenomena such as price, income and system. Therefore, the principle of chaos in each theory is incomplete.
In addition, the decision principle of system has not been found yet. I would rather confess that I could not even approach it. The decision principle of the system may be the domain of history including cultural history, sociology, politics or futurology, perhaps as a matter outside the scope of economics. I could not elaborate on the decision principle of the system. Although there are some remarkable achievements such as the economic development stage of the historical school and the dialectical materialism of the Marxian school, they did not coincide with the theoretical system of Choe's economics. I am looking forward someone who are more competent with better scholarship than I and that he will establish the decision theory of system to complete Choe’s economics.
Even though Choe's economics has the limitations as mentioned above, it is superior to any other economics in reading economic phenomena, diagnosing current situation of the economy and predicting the future. In a word, the paradigm of Choe's economics is better than any other current economics. This issue will be discussed in detail later in the course of dealing with ‘Economic Diagnosis and Forecasting’. From now on, we will examine each principle and theory of Choe’s economics in turn.