Economic Models - Part 1 - The Classical Economic Model

ECONOMIC MODELS

There are three basic economic models.

1. The Classical Model

This covers a period form 1776 when Adam Smith published his Wealth of Nations, until 1848 when Mill put before the world his Principles of Political Economy. Between the publication of these two works lay the astonishing career of Ricardo, who like Mill, was a child prodigy. Unlike Mill, he had little formal education.
He was born in 1772 to Jewish parents who settled in London.

His parents had been involved with the money market and it was there that he followed them at the tender of fourteen years. Such was his ability that he was able to retire at the age of 42 and was persuaded by Mill to commit himself to writing. This he did, publishing some half dozen important works during the first twenty years of the 19th century. His retirement was disappointingly short, only nine years, before he died at the early age of 51.

Although the writings of these classical economists were diverse, they are mostly remembered for belief in free and unfettered competition within the economy - that the government that interferes least does the most good. Such a laisse faire doctrine informed most of the political thought of the last century.

The Classical Model was thus the earliest and simplest generally-accepted model and held sway for many years. But what may be suitable for the comparatively simple economies of 18th and 19th Century Europe, may be simplistic in a more complicated modern economic environment - or so some thought.

By way of example the Classical Model states that when interest rates are low (the cost of money is low) it should follow that production should increase. But between the World Wars it did not, and for this reason Keynesian economics distrusted the Classical Model and preferred fiscal policy as opposed to Monetarist Policy.

 But why should anyone want to increase production because money is cheap? Production should only increase if demand increases. Increasing expenditure/production in the hope that the goods so produced will be sold is naive. Full employment can indeed be achieved by this method - making goods which cannot be sold - but the end result would be bankruptcy. Surely it would be better to increase demand first and increased production would surely follow.

The classical way of doing this would be to decrease the price of money and consequently the price of goods with it. Demand should increase, and with it production, as night follows the day. The trouble with such a purist view is that under normal circumstances this should indeed apply but after the depression things were anything but normal.

Once businessmen have suffered substantial losses it will require more than cheapness of money to entice them back into production. A man who has nearly drowned in a deluge may become afraid of his own bath tub. The reason why economists so occasionally agree with each other is because they take no account, or different accounts, of the psychological factors involved.

Out of this equation must not be left cultural factors such as the work ethic or the absence of it. Economics is a soft science (according to students in the Engineering faculty) and because it deals with man it is more of an art than a science. Or at the point it touches man it ceases to be a science at all and becomes an art.

Disclaimer: The views expressed in this article are not necessarily those of L.J Armstrong Booksellers C.C. , its owners, staff or management. 

This blog is managed and maintained by Express Eloquence (Pty) Ltd. on behalf of L.J Armstrong Booksellers C.C 

Supply and Demand - An Extract from the Tyrants Handbook of Economics

We will start off with a few easy-to-understand concepts by looking at supply and demand. This should more accurately be termed demand and supply because supply very rarely precedes demand except in the case of taxation where when the government sees a supply of money and then demands a piece of it.

One authority has proclaimed that a shift in supply occurs simultaneously with a shift in demand. This leads to the inflationary spiral or wage-price spiral.

Indeed it is the demand or anticipated demand that causes an increase in supply. The converse is surely impossible; increasing supply cannot increase demand unless of course the price of the supply dropped.

Furthermore, it is difficult to see how an increase in supply and demand can effect the inflationary spiral. Inflation surely is caused by increasing the money supply. If the rise in demand was equal to the increase in supply surely the price would remain unchanged. Only if the demand exceeded the supply would the price rise.

In any case, a rise in a particular price on its own cannot cause inflation (only an increase in the supply of money can) but it will cause an adjustment of relative prices - some prices rising and some falling. These are the kinds of controversies with which economics deals and it is necessary to think very clearly, step by step, about causes and consequences.

Most university students who study economics learn the traditional theories off by heart and have very little real understanding of the dynamics involved. It is important that the reader of this little book, be they university students or Ministers of Finance, should fully understand the principles and processes involved. Economics is a fascinating subject but it needs to be read, studied and inwardly digested.

Disclaimer: The views expressed in this article are not necessarily those of L.J Armstrong Booksellers C.C. , its owners, staff or management. 

This blog is managed and maintained by Express Eloquence (Pty) Ltd. on behalf of L.J Armstrong Booksellers C.C 

An extract from the Tyrants Handbook of Economics - Part 1 - Economics Defined

CHAPTER 1

The first thing you will notice about this book is that there is only one chapter. I have done this for reasons of economy - both the readers and mine: if there is only one chapter it will allow you to read it faster and will be quicker for me to write it.

1) Definition of economics

Economics is about MONEY. Wrong! It is about PEOPLE and how they react to MONEY. In all cases money is of all substances or essences the most inanimate. Some people, but by no means all, do show some signs of animation and so economics may be defined authoritatively as the relationship of PEOPLE to MONEY. Not money to people.

Money can have no relationship with people. This is important to remember and you can test my definition by a simple experiment. It requires you to place two ten-dollar notes side by side in a fairly public place. It will strike you immediately that neither note will make any effort to pick up the other. This has never been known to occur although one economist I know has lost quite a lot of money trying to disprove it. 

What nearly always occurs is that some PERSON will pick up the money. I say nearly always because on one occasion when I tried this experiment a flock of the nuns of the Order of Poverty walked right past the notes without so much as glancing at them.

This would seem to demonstrate that the laws of economics (there are really no laws or economics only economic probabilities) are not cast in stone as were those of Moses. Not all people will always act in the same way and therefore whilst economics, for most practical purposes, obeys the mechanistic theories of Newton, they act in some cases more like those of Quantum Theory - neither waves not particles. 

Consider this by way of example of this truth: it is believed as a fundamental fact of economics that if you reduce interest rates you stimulate the economy. This happens because money becomes cheaper and everyone is expected to rush at a bargain. Yet paradoxically this did not happen as a remedy to the problems of the depression when interest rates were in some cases almost negative.

The banks, assisted by the government were close to paying borrowers to borrow money in the hope of firing up the economy! The reason that there were no takers was simple. After Uncle Billy has lost his life’s savings when his hardware store went bust, and Aunt Betty-Jane’s inheritance disappeared, and Billy’s dad killed himself when his stocks evaporated, and the money for crippled little Jo-Anna’s callipers had disappeared along with the Agricultural Bank for Farming Prosperity - and Aunt Betty-Jane thereafter decided to invest all her remaining money in houses (public houses) and ......... and so on and on the sorry storey continued. 

Well, the lesson to be learnt from this is that nothing would induce such people to take any more chances with borrowed money and debt. In a word (or three words): they lacked confidence. Confidence and perceptions are to economics the same as they are to faith healers: neither can function without them.

Disclaimer: The views expressed in this article are not necessarily those of L.J Armstrong Booksellers C.C. , its owners, staff or management. 

This blog is managed and maintained by Express Eloquence (Pty) Ltd. on behalf of L.J Armstrong Booksellers C.C 

A Poem About UNISA

I thought I would write a quick poem about Unisa, simply because I don’t think this has
been done before:

Unisa is big and grey,
It serves people from far away
Unisa is world renownd
Its website is good, I’ve found.
Unisa’s students come from everywhere
Its enrollment policy is fair.
Unisa is pretty old
Its call centre is busy - I’m told
Unisa offers distance education
It helps thought’s activation.
Unisa has famous alumi:
Nelson Mandella was one guy.
Unisa, Unisa, Unisa

Let us know what you think of this post. Please comment Below. 

Web design for Non Web Designers - For Entrepreneurial Unisa Students That Need to Deal With Designers

A Quick Guide to getting your Website Designed 

Finding a good web designer can be a long and difficult task. 

There seem to be three broad types of web design companies:

the cheap, the expensive, and the very expensive. 

As with many other things money does not always buy quality. It is not that simple. I recently sent a brief description of my new website’s requirements to a number of local Web designers. Most did not bother to respond to my enquiry. Of those that did, some simply said they were not able to do the job – for a variety of reasons. 

The quotations I did receive varied more than a little. The cheapest was R 8000 and the most expensive was R 200 000. I thought that there was probably something wrong with the companies that gave these two quotations. I decided to interview a few of the web designers that had found the time to give me a quotation. 

I do not consider myself a technically minded person. I know as much about web design as I do about medicine – almost nothing. Web designers, like doctors seem to have a habit of expressing themselves to the layman as if they were contestants at a competition where the one to use the most jargon wins. 

In preparation for my interviews I read the book, “The Complete Idiot’s Guide to Running an Online Business”. By the time I had finished it, I was sure that I’d be able to speak, “geek”. 

It helped a bit. I had at least a basic understanding of what some of the following terms and names mean: joomla, droople, cms, voip, html, xhtml, gif, jpeg, ftp, seo etc. etc. 

You could go to a meeting with a web designer unprepared. This would probably be a waste of your time. You may know what you want them to do but on the spur of the moment expressing your vision can be difficult. 

Here a few suggestions of how to prepare:

1. Make a list of the functionality you require.

2. Decide on the overall goal of the site.

3. Consider what the site should look like?

• Which colours do you prefer?

4. Think of your time line.

• When do you need the site to be up and running by?

5. Make a list of any questions you have - no matter how silly they might seem.

6. Remember that you are the boss

• Just because you are in their office or boardroom it does not mean that they are in charge – you are.

Meeting face to face with your web designers is just the first of the many steps in building a successful working relationship. Think of it as a first date. You’ll learn about them and they’ll learn about you. If something comes of it that’s great. If not there are many more out there that will be happy to help you.

What I learnt from educational psychology - An Insight from on the Couch- For Unisa Psychology Students

It was quite some time ago – almost ten years ago now. My parents felt that I could be doing better at school. I agreed. To all intents and purposes I seemed an intelligent young man. That was of course if you didn’t look at my school report. I was failing one or two subjects and not doing much better in the others.  

It was suggested, I think by the school’s guidance teacher, that I may benefit from a visit to an educational psychologist. I arrived at Dr X’s rooms, (the name is not omitted for the sake of anonymity but because I simply cannot remember her name.)  She was a woman, probably in her mid thirties. She asked me a few questions, mainly to do with school. She then sat me down at a desk and asked me to complete a great number of tests. I did so.

I was not a rebellious teen – in fact quite the opposite. Yet, the moment I met her I was on the defensive. I knew her game. She was the clever doctor - out to prove that there really was something wrong with me. 

I myself thought that there might indeed be something wrong with me. Why else would I be sent to this “special” doctor. I grudgingly completed the tests. She then showed me a number ink blots and asked me to say what emotion they provoked. Some it seemed were beyond interpretation. You could only associate an ink blot that looked like a distorted face as pain or anguish.

At this point I truly began to feel like one of the afflicted. Despite my assumed mental deficiency I knew what the doctor was doing. I had seen this test carried out in movies – usually to establish the sanity or insanity of a serial killer. With this in mind I tried not to associate too many of the images with words that implied destruction or negativity of any kind. I thought these would be the wrong answers. I only realised later that the opposite may be true. 

Following this I went from feeling like a villain to feeling like a three year old. I, at the age of Sixteen, was instructed by the doctor to, “draw a picture of my family”. The past thirteen years of my life seemed to have never happened. For the next few minutes I was a toddler innocently drawing a picture of my mommy, daddy and big brother. Unaware of the Doctor’s reason for this seemingly infantile exercise I surrendered to it. I enjoyed it. I had always been good at art.

Unfortunately my artwork would later be analysed and in my opinion criticised, but not for its artistic merit. No, in a follow up session the good doctor explained that, because in the picture of my family I had drawn myself closer to my mother than to my father I indeed favoured my mother over my father. What this finding had to do with solving my educational problems I still do not know. Nonetheless there it was in colour – proof of the Oedipal complex. After all a picture drawn nonchalantly in complacent compliance to doctor’s orders was irrefutable and empirical proof. Through my artwork my subconscious had spoken. When I disagreed with the doctor’s finding she claimed I was in denial.



I am not quite sure of what happened after this. Maybe I repressed it, but I think, as the follow up consultation progressed it was at some point suggested that I repeat standard 9. My parents wisely chose to ignore the Doctor’s advice. Time it seems, has proved that I am not completely intellectually deficient. Or maybe I am, I did in truth only get 70% for one of my degrees easiest courses – first year psychology.

None of the educational psychologists ever considered that the problem may not have been with me but rather with education itself. Throughout school, I was most of the time, intensely bored. Not surprisingly I might add. The history teacher whom I had the honour to be taught by for three consecutive years had perfected the art of teaching – brilliant, who would have thought that effective teaching could be achieved simply by reading aloud directly out of the text book.

Presumably the department of education has for the past many years subjected trainee teachers to their own psychological testing and career guidance. This surely is a logical assumption. Why then does it seem that so many teachers are (even to a sixteen year old) so obviously unsuited to teaching? Think of your own high school teachers. If yours were anything like mine, most were impatient, many incompetent and some emotionally and physically abusive. There were some, a very rare few,that were extremely decent human beings and excellent teachers. 

These precious few would likely have found their vocation regardless of any psychometric testing they had endured. In the past few years I have been subjected to a great deal of further psychological testing for the purpose of career guidance. I believe that the results of some of these tests were highly accurate. The problem lies with the fact that all they told me was what I already knew. What then was the point?

I’m not saying that psychometric and other psychological testing is a completely useless process. I am sure that in the right circumstances it can be useful. From a ‘patient’s” perspective I can only say that none of the testing I have endured has yet done me any good. And in many cases I believe that therapists give such tests too great a value and often neglect to adequately interact with their clients.