Abstract
Looking deeper into the circular flow of economic activity, the author considers the components and course of this activity, looking closely at the series of periodic metamorphoses of economic categories that unfold normally under appropriate condition. Here, Rohatinski shows that each metamorphosis comprises two core levels: the economic event and the economic process. The set of economic events experienced by an individual or entity makes up the entirety of that subject’s economic activity, while economic processes entail a set of functionally related economic events. The author argues that these processes are not a mechanical sum of economic events, but rather dependent on the functional relations established among them.
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Notes
- 1.
Extending the analysis of economic activity from individual economic subjects to wider associations , including a society as a whole, and modelling of this activity result in establishing global relationships between the aggregated elementary economic subjects , associations , variables, and parameters for their behaviour. In this sense, the endogenous and exogenous macroeconomic variables, y and xʎ, represent either a sum of adequate micro-economic variables of the state in the unit of time or a weighted average of micro-level variables of the economic course (Henri Theil, Linear Aggregation of Economic Relations [Amsterdam: North-Holland Publishing, 1974] 10–26).
Problems occurring in aggregating certain micro-economic sizes, such as in cases of aggregation through transactors, commodities, and assets, were described by Leijonhufvud (1968).
Algebraically, the macroeconomic variables represent only an aggregate of the same type of micro-economic variables. In contrast, in the case of parameters , complex relations are formed between and within the micro-economic and macroeconomic parameters , as well as in instances where macroeconomic parameters depend not only on the same type of micro-economic parameters, but also on all relations within the micro- and macroeconomic activity of a society.
Parallel to these algebraic relations, there are also other quantitative-qualitative relations among the micro- and macroeconomic variables and parameters. For economic activity on the micro- and macroeconomic levels, the vertical relation of relative significance of individual variables and parameters is especially important. The lower the level of specificity of an individual economic variable or its corresponding parameter in relation to the number and breadth of economic subjects , the higher the level of this individual variable or parameter. In other words, the level or the relative significance of an individual variable and parameter within the economic activity is a function of breadth or density of economic subjects on the behaviour of which they homogeneously—uniformly, but not necessarily with the same intensity—influence.
Functional dependence is also formed between the micro- and macroeconomic objectives as the need to achieve macroeconomic objectives determines the conditions, frameworks, and the manner of achieving the micro-economic objectives. This is shown in Adam Smith’s observation that community service was based on the egotism or self-interest of the engaged individuals. Later economic analysis, however, showed that endeavours to maximise the micro-economic objectives through mutual competition or conflicting objectives of individual micro-economic subjects would not necessarily lead to maximising the macroeconomic objectives because that would require participation of subjects on a higher level of the hierarchical structure of the economic system.
- 2.
Based on János Kornai, Anti-equilibrium (Zagreb: Centar za kulturnu djelatnost, 1983) 58–59, 70–84, 208, 265.
References
Kornai, János. 1983. Anti-equilibrium. Zagreb: Centar za kulturnu djelatnost.
Leijonhufvud, Axel. 1968. On Keynesian Economics and the Economics of J.M. Keynes. New York: Oxford University Press.
Theil, Henri. 1967. Economics and Information Theory. Amsterdam: North-Holland Publishing.
———. 1974. Linear Aggregation of Economic Relations. Amsterdam: North-Holland Publishing.
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Rohatinski, Ž. (2017). Components and Course. In: Time and Economics. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-61705-3_6
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DOI: https://doi.org/10.1007/978-3-319-61705-3_6
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