UNIFICATION THEORY

ECONOMICS

By

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KANIKA SAXENA SAURABH YADAV

“Nature has remained unpredictable because the time needed to predict an event is more than the time taken by nature to execute it.

”

Introduction

ECONOMY AS AN ORGANISM

Imagine the economy to be a young girl. Every morning she would wake up and work, to feed the organs of her body such that their functionality remains intact. To grow her body needs food and food needs to be procured from the universe around her.There are other economies around her too. All the economies grow according to the same pattern inherent in them yet, each economy is different from the other because each exists in different parts of the universe where the external rhythms are at dissimilar phase.If we look at trees around us, each follows the same pattern of structural development; each tree looks different yet, similar to the other. If a tree starts growing under a rock, after some time it will have to bend around the rock. This tree will have the same pattern of branching yet, it would appear different from the one growing in the open ground.The girl’s analogy of the economy or in the analogy with the tree, we see that both comprise of organs and organ systems that specialize in performing particular functions that make the existence of the organism possible. Here, an organism is a body that has specialized working sectors (ex. Primary, secondary, financial sector) that keep the body functioning in a dynamic situation where all the organs function in synchronization with each other in a harmonious equilibrium, which is called the existence of the organism.Similarly, when we observe the working of an economy we find similar synchronizing tendencies between the working of different sectors. The functional decisions of one sector are dependent upon the output and performance of other sectors. If a particular organ malfunctions all other organs are affected, though the amount of influence would vary, and this is why the remaining less affected organs try to bring the body back into its natural rhythm of functionality. For example if an economy’s agricultural sector is not performing all other sectors will be influenced yet, the economy as a whole would not fail to that extent. The higher degree of survival of a body－ which contains different sectors all together within her

boundaries－vis-a-vis organs in individual existence, is the reason why economies exist as bodies and not in singularity. If the agricultural sector of the economy fails, it will be the tendency of the economy is to shift its focus to the industrial sector or to the services, but this does not imply that the failed organ is ignored forever. As soon as the other sectors have compensated for the failure of agriculture, the focus of the economy automatically shifts back to it because ultimately the existence of the body depends upon the functionality of the vital organs. The initial shift of focus of effort is the body’s mechanism to keep the entire set up working, and build it up until it can heal the organ. In other words the existence of a body is a continuous process in time and in a situation of external peril, the body cannot stop its essential rhythms and focus on the injury, rather the extra effort will be deferred to a time in future when the external threats have been subdued. When the body feels that the external threat which caused the organ failure has reduced－the economy tries to protect its other important organs－and then she focuses back to heal the injury. The phenomenon can be explained by an Ice-traveler’s analogy. If the traveler is stuck in a snow storm in some remote area of the arctic where temperatures will be sub zero, he would observe that as the temperature keeps falling and the body is continuously exposed, he will start getting frost bites, which are nothing but the body’s shift of focus from less important organs (in this case) like the tip of nose, fingers etc. The blood flow will be directed to keep the chest and brain functional. The moment the storm passes away and he finds a warmer place, the circulatory system (if it’s not too late) will resume blood flow in all organs and he himself would take measures to heal the injured fingers. This way the ability of deferring the additional effort required to heal an injury to a safer time in future increases the economy’s chances of survival during difficult times.

If the previous analogy seems to be comparing the agricultural sector with the tip of the nose of an Ice traveler, then, we can go a little further and more imaginative. Consider a simple case where a man is being chased by an assassin and in the process he hurts his own leg. The man will not stop to care for the bleeding leg (ignoring suicidal tendencies of the man) rather, would use his hands and the one working leg to find a place to hide than to lose his existence to the assassin. And this is why the harmonious functioning of all organs in order to survive the entire body enables their own existence. This is how an economy functions: all organs work in order to keep the economy functional and as a return to this service each organ ensures its own existence.That was the reason for the existence of the analogy – economy as body. Now if we try to understand the functioning of the economy we realize that the concept of internal and external factors comes into picture. These factors are interrelated and are separated solely by the boundary of the economic organism. The boundary defines a body to be separated from the universe around it. The question arises as to what is the boundary like and how is it defined? What separates a particular economy from other economies and everything else? The young girl’s physical boundary has per se, nothing to do with the sole functionality of the organism, it does not see, think, circulate blood or digest food; it simply defines the organism into the higher dimension where it interacts with other organisms. Not forgetting that it functions as a semi-permeable membrane that allows raw materials－that are utilized by the organs inside, and keeps out the elements that can harm the constituents of the body; in turn, the body herself. In the case of economy, this function or role is played by the geo-political border that defines a country, city or even a family and so, we call an economy to be a country’s, city’s or a family’s economy. The boundary protects the economy from external factors like wars and disputes.But now again a question arises that the geo-political boundary of the economy does not protect it from the natural disasters like earthquakes or tornadoes that might arise in some other economy but will enter the neighboring totally undeterred by the boundary so defined. It might appear that the ease with which many such phenomena enter economies implies that there is no such boundary that separates economies. If we look at the after effects of an earthquake, we understand that the government that rules the geo-political boundary takes initiative to rehabilitate and repair the damages so caused only into its own country. The organs of the economy that find themselves belonging to that particular boundary work to re-establish the whole setup and such a function does not cross the geo-political boundary. Even if it does, it will be like two friends fall from a bicycle, both get hurt and the one, who was able to stabilize first from the trauma, helped the other.Existence of a body in itself implies that is functions. A function being a mechanism that enables the survival of the body, of her existence into the universe to which it belongs. Sometimes the functionality of the body is not as obviously evident as in the case of an economy. But everything that exists, functions, otherwise it ceases to exist as a body. Just like a tree exists in a house even after being cut, not as a tree, but wood. An economy, if it loses its sense of existence as a body, ceases to exist and hence the role of politics and the geographical territory is essential for the economy’s existence. This also shows that the polity is an essential organ of the economic body and their independent existence sans the other is not possible.Now, let’s turn to functioning in proper. If we observe the working pattern of the girl we infer that it undergoes periods of work followed by periods of rest. Why does the girl not work all day, or sleep? Why does the body need to undergo cycles of procuring food (or working in order to procure food) and enjoying the food and resting or not working? Similar cyclical behavior is observed in the case of the economy where periods of boom in production are followed by periods of slumps. This cyclical tendency of an economy has been analyzed by several prominent economists. As A.C. Pigou says in his book ‘Industrial Fluctuations’

It is easy to imagine a community in which industrial fluctuations occur because, and only because, for

physiological or other reasons, people’s aversion from work, or desire for fruits of work undergoes periodic changes. This kind of thing in fact happens over short periods, as between day-time wakefulness and night-time sleep; and there would be nothing to surprise us. Although it is very surprising if similar periodic changes occurred over longer intervals, three or four years of exceptional physical and mental energy being followed by three to four years of comparative quiescence.” He goes further to say, but without explaining the reason, that “In a community so affected it would not be proper to regard the industrial fluctuations experienced by it as evils. Given the present constitution of human nature, we obtain more welfare from alternations of complete wakefulness and sound sleep than we should enjoy if these fluctuations were ‘remedied’ by governmental action designed to promote a continuous intermediate state of semi-somnolence.”

We will try to ponder over this point in the course of the paper trying to explore the working of an economy.

ON INFLUENCING FACTORS

Every body that exists has to face some external and internal factors. Most of the times, it is difficult to decipher whether an influencing factor is external or internal or something beyond. The young girl, if catches cold (or falls ill) and fails to function, or in other words, work for a particular period of time then we can say that this happens due to some external factor id est a viral or bacterial infection, which are obviously external bodies and this kind of an influence can be termed to be caused by an external factor. If we dig deeper into this problem we observe that the external factor (in this case) viral infection affects only a particular organ system of the body under consideration. After the body has been infected the respiratory tract of the girl would malfunction; she would sneeze, cough and her eyes would be teary. As a result her head would feel drowsy and the functioning of the whole body would undergo a slowdown.In this case we see an external factor which influences a particular organ system ultimately leaves the whole body affected. But as all other organs were influenced by the organ belonging to the same body, we can consider the later effects to be the internal factors. Although even the influence of this so called ‘internal factor’ in ultimate analysis was caused due to the external factor only, but, it is quite intuitive that no matter which case is considered under ultimate analysis it turns out to be caused due to an external factor. Now the question arises whether there are some factors that are purely internal? And if we think, we infer from economics literature that there is a concept that describes an economy to be having several inherent tendencies.Understanding any concept from its origin is very difficult because, any root cause analysis of any concept that exists in the natural universe takes a backward route to infinity. So to understand concepts of the ilk currently at hand, we create analogies1. Until a mathematical form is developed that contains the pure form beauty of mathematics2 plus the impurity and chaos of reality we can resort to this more poetic, artistic and chaotic method of analogizing. The inherent tendencies of the girl will be the growth pattern her body follows. No matter what the external factors are she would grow the same body pattern also the pattern of high growth when an infant and then later stagnating after reaching the age of around twenty five years. Even if the external factors are altered, say, the availability of food is scarce, then, she would still grow the same body pattern as that of the girl having enough food. Although one would have fuller legs and hands but both the girls will have two legs and two hands, precisely. These are the inherent tendencies of a body. Even if one economy has a lot of natural resources than the other both will ultimately have to develop a central bank and a banking system along with other features like a ruler or government, which are the inherent tendencies or requirements of any economy. The inherent tendencies of economies would be explored in detail in the due course of understanding the economic evolution and its unification with the evolution of biological species.

1 When we explain a particular phenomenon by the help of analogies we need to make sure that the analogy should be made with the body that is a constituent of the body under consideration. Also the constituent should be such that it has self-similar particles i.e. having same inherent tendencies. Such self-similar particles create a matrix over or on which the body exists. Also analogizing is a very complex system because a particular body exists in many dimensions of observation at the same point of time and in each such dimension it has a different matrix. Hence when we are examining a problem we need to identify; to which dimension does it belong. Then we pick up a unit pattern from the matrix of that dimension, to create an analogy to understand the working of the organism. In this paper while observing the working of the economy as a body we realize that the economy exists in the realm of the biological organisms (in our case humans) and hence we picked up the self-similar body of this matrix i.e. a human body. In our case we analogized with a human girl. Even if we had taken a human boy the analogy would have been plausible since both a boy and a girl have the same inherent tendencies when we are observing their existence as bodies. Though, the young girl would represent a young economy, because the tendencies of young bodies are different from that of the old ones. Analogizing gives us an imaginable level of understanding and that too up to very intricate details.2 The more reliable technique nowadays is that of mathematical or statistical analysis. But this method has a lot of short comings, the very loopholes that we can hear in the classrooms of our time when any economic theory is described in mathematical terms. “What the mathemati-

The information stored in the genes of a nascent organism takes the body further on its path of growth in order to become a full fledged self sustaining organism. As the information stored into the genes is inherited from the body’s predecessors, it is termed as inherent. This information leads the body to have the inherent tendencies so observed by us. Evolution does occur with time and it seems that these inherent tendencies have changed with the change from one generation to the other. Because as only those organisms are able to survive in the ever changing external factors, which have the most suited tendencies and are able to pass these on to their future generations. Now it might appear that the inherent tendencies themselves change with change in external factors and hence even these are not independent, but this is not so. And this is so because it is just a natural selection of those who can survive. The external factors have the least influence over these tendencies. It is like you pick up only blue balls from a bag full of blue balls plus red balls. But this doesn’t mean that our external influence over the bag changed the color of its blue balls to red.3

3-cal model describes does it actually happen in reality?” This kind of a problem is obvious to occur while explaining systems that exist in nature because mathematics is a pure form of analogy that is independent of any influence of the actors that exist in this universe. Mathematics is independent of our universe and hence while describing a system this way the influences by the universe over the body under analysis have to be added as variables into the mathematical model. But since the universe puts infinite external influences over the body, we cannot add an infinite number of variables or even too many variables into the model, the mathematical models no matter how complex would always be too simple to match the real phenomenon. Whereas, in the method of analogizing, we try to make a model on the basis of observations of a body that exists in reality and is already under the influence of the infinite variables. Hence the infinite external factors influencing the system under analysis are already taken into consideration by the body we analogized with. Since we make conclusions by observing the analogy, we automatically solve the fallacies present in a mathematical model i.e. inefficiency of including more variables and plus the unknown.

ECONOMIC BODIES IN DIFERRENT DIMENSIONS

In the life of an individual, we observe that his existence inside his family improves the chances of existence of his own economy, because his own economy individually (if it would survive) would live only for a maximum of 40years, roughly put. As his family contains several economies which have started their existence at different periods in time it reflects the reason behind why the world has several economic bodies of different ages; some new, some old, some rich and some poor. Because this is the only way the entire body (world economy) can survive and also all economies at individual level would be able to sustain and survive. It is a chain of mutual benefits deferred to each organ of the body in time. If this was confusing, come back to the man and his family. What is the reason for a family to exist? The reason is that a family lives longer than the individual age of any member of the family, not only this much, but also that the individual age and the standard of living of each economic entity gets a boost by being an organ of the body namely, a family. And applying this unification with the evolution of species we get the reason why nature selected sexual reproduction over asexual, since now only a fully grown pair of male and female can produce a progeny and the initial care required by the new born can be assured and hence it is in a pair that division of effort in rearing of child and gathering food can be made possible. So, the chances of survival of the progeny increase. We realize that this kind of maternal and paternal care towards an offspring too might seem to be very altruistic, but the child does not stay a child forever. He/she would automatically work in order to improve the survival of the entire family as the parent’s ability to produce income for the family would decrease.

In the case of economics, we see developed nations aid the less developed ones. We have observed the aids provided by USA to Japan after it was reborn from the WWII that enabled it to strengthen its economy again and subsequently, it became a helping hand to feed the consumerist population of USA. Also when such aids lead to formation of families of nations, any dispute between such families takes the form of a World War where each country feels itself to be a member of its respective family and find its duty to support the family body against external bodies4. We saw how small entities come together to form larger ones and so on, and hence inherent tendencies remain the same, the larger bodies too behave in similar although not exactly the same manner like its constituents.

4 We have seen in movies that if an alien species attacks earth, all countries would automatically unite against the external forces to protect their own body i.e the planet earth

THE LEVEL EFFECT

Consider a primitive human population whose prime source of income or consumption is a small pond with a salmon fish population. If we observe population dynamics and inter-specie population relations, we understand that for any specific population there is plethora of discovered and undiscovered sources of consumption; these sources either directly or indirectly serve as prey. Also there’s another side to this. As every population has sources of consumption, it also has many predators that have already discovered the specie or might discover it in future. In this set of sources of consumption and predators there are natural factors too, like the Sun provides energy and helps the photosynthesis of plants, and like tornadoes and hurricanes that play a role very much akin to any predator of species. The availability of resources and the influence of the predators determine a population’s death rate and in turn, the net population.5

As nature develops by selecting the best designs having the best survival instincts, humans develop observation and innovation by observing other designs of nature, of their techniques to survive, and innovating by adapting to these techniques, in order to improve their own survival. Human species was and still is able to decrease its population’s death rate. We see vaccines being developed and protecting the human race from its predators. Also just like nature transfers the inherent tendencies by the means of genes, humans transfer the knowledge acquired from generation to generation through education. Hence we are here writing and reading papers, learning from present and previous generations, innovating and then passing it on to the next generation and so on.

Therefore, the human population kept on feeding upon the Salmon population but since the death rate of humans was low, the human population expanded and so did the consumption of salmon. Due to this increase in the predation, its death rate increased and as salmon could not migrate or even if it could, its population inside the pond diminished. With this the income levels of the human population too fell. Due to the lack of food the human death rate started to rise. But, being advanced specie, they searched places and found a new source of salmon, probably on the bank of a nearby river and hence an undiscovered source of income was exploited. Now as the population had two sources of income at the same time, the income level rose to an even higher level than the previous boom in the income level. Therefore the income curve of the human population completed a cycle and also produced a level increase in income and population, all because of the period of decline in income and the subsequent innovation period that took the curve to higher level and hence leading to development in the human society as the increased amount of available food reflects increased chances of survival. This, in turn, reduced death rate leading to increase in human population. Since more people living together means more protection from predators, the human society developed and the economy was growing too as different sectors would eventually develop in order to survive with/in the body so formed. Fishermen would give fish to the men who protect the society and do not have time to catch fish. Since a body has more chances of survival, each unit started to work for the society or the economy as a whole to ensure its own survival.

Therefore the ability of human bodies to form a larger body i.e. a society or economy was a result of the realization that this is the only way in which each can increase his or her own chances of survival. And this very realization is one of the most important inherent tendencies that can still be observed in economies.

But this system has a fractal beauty. As can be seen from the graph that these smaller cycles are a part of a

5 The natural birth rate or fertility rate of a population is the inherent tendency of the specie. If the organism is alive and is able to reproduce (the ability to reproduce though can be influenced by external factors) it will produce its progeny according to the inherent capabilities. Dogs and cats give birth to 4-6 progeny at a time, humans, cows horses give 1-2 births at a time. And hence the natural birth rate depends on the specie under consideration and the period for which it is alive to reproduce. Once fertilization of egg occurs it can be termed as a body and now its survival would depend upon the external factors surrounding it, like the mother’s health, food availability, blood flow into the womb etc.

larger cycle, and this larger cycle would be studied hereafter.

As the human population in our case keeps on growing by exploiting more and more sources of salmon (income), there will be a point reached in time that no more sources of salmon would be left to be exploited and then, the income or the consumption level of the population would stagnate. But since the human population cycle goes at a time lag with respect to the salmon population, the increasing human population will not have enough food to survive. Therefore, again the death rates would rise (or the developing social structure would curb the rate of births by banning the birth of more children 6) as no extra food would be available. This kind of a suppression of overcrowding would force many people to migrate further; perhaps far off lands that were hitherto geographically isolated. Hence, this slowdown in the economy would again lead to innovations like ship-building. The surplus population would migrate to other lands and thenceforth, the strain over the resources of the initial land would reduce allowing enough food for the reduced amount of people. The existing economy would then have divided into two all because of the strain over the income sources and the lagging population rate cycle. We saw the action of waves and since these are many waves simultaneously in action moving in different phases, this leads to many changes. Now both independent populations would also follow the same patterns above and as the populations would keep growing in both the economies, the search for more suitable habitable lands would begin. Both the economies now would be acting as two separate bodies, because both have separated geographical territories plus, they would have different polity. When each economy again faces a decline in its income levels, the increasing population would put a strain over the resources and over the polity to divide the economy or expand. Hence the economy would split as the surplus population would migrate to other habitable lands.

As this accumulation and division of the economies continues, the graph of (overall) population would keep on jumping levels and the waves would keep moving through time causing many changes that we would soon observe. If we notice, even the income levels and the subsequent consumption levels have also followed similar level-jumping-wave form that keeps on rising higher up. A distortion would occur in turbulence as people would observe that periods of boom in consumption are followed by periods of slumps and hence they would save.

As we have observed that an economic organism can be formed in different sizes; each inside the larger one just like a set of Russian dolls. The family’s economy is contained in a locality’s, a locality’s economy is contained in a city’s, a city’s is contained in a country’s and ultimately every country’s economy is contained in the world economy. If we dig deeper we realize that each economy, even after changing the scale of observation, follows the same inherent tendencies. It is just that their inter-relations start acting as a new set of external factors.

Each economy has its own set of waves and each set is a fractal of the larger set of waves belonging to larger economies. As we can infer from the graph that the smaller wave sets of the (dimensionally) smaller economic bodies (like an individual’s economy or his family’s economy) moves with a higher frequency than the wave of the larger economies (country’s economy or the world economy). We can also observe that as the smaller waves ride the larger ones, they too get influenced by the changes in the wave that they are riding. If the country is under an economic slump, the booms of a family’s economy would get more and more meager as the country slides more and more into the slump.

The practice of savings in surplus periods enables the body to improve its chances of survival in deficit periods. But since larger bodies realize phenomena later in time, we realize that the concept of savings is

6 If any economy at any level tries to control their population by curbing the birthrates they will face the problem of aging out and ultimately dying out of existence. Similar problem China would face if it does not increase its birthrate after some time, its population would grow old because death rates are already low. Demographic Dividend Problem is thus in order.

age old in the human history. Yet the economies of the nations learned it only after Keynes pointed it out that even a nation’s economy has its own slump and boom periods and hence the governments should save in the booms and consume (invest to increase consumption) in the slumps. It was very effective to take the economy out of the slump by fiscal spending, but that too failed, later7 in solving the problems during the oil price shock of the 70’s. Why did the system of savings fail to stabilize the waveform nature of the economic life? The reason is that different waves have dissimilar frequencies in time and a country trying to save in the slump era of the world will not be able to save enough because the next time the country undergoes a slump, it would be severe than the previous one. This is because the wave of the world economy that the country’s economy is riding is on its downswing, if put simply. Let us try to see whether it fits our salmon fish analogy or not.

We had seen that the economies were expanding and then dividing to form newer economies. Now a time would be reached when no more habitable lands would be found and hence, as all economies would be in a race to capture the newer lands. Wars would take place as these economies would fight among themselves. Also, the search for new lands would not only happen because of the problem of settling the increasing population but also to feed the needs of the existing population whose ever increasing standard of living would demand more and more natural resources8. As the need for new lands and for more resources would be higher during the global slump or the downswing of the global economy, most global wars would be fought during such times and more countries would join the global economy (or so to say would be liberated) when the world is in a trough.

When an economic wave is riding a larger wave which is on its downswing, we observe that savings and subsequent investments would not be able to stop the giant wave from falling. When this larger wave is on its upswing it shows that the whole world is exploiting a particular set of resources for consumption and when all these resources get exploited and no new sources or efficient alternatives are found there will be nothing to feed the extra population and hence the world economy would stagnate and then would start to fall until a new source for global consumption is not found.

Now, an argument may arise that economies should invest into finding newer resources when they are on an upswing, but the fact is that during this upswing all the innovative attention has to be on more and more efficient ways of exploiting the present resources at hand. Also if any country tries to invest during the slump times, people already know or even if they do not know that this is just created value, they invest in assets that have real value and whose value is the most stable even during the slump. Hence, they invest in gold or land for housing, but the fact is that such investments are not productive; they do not play any role in finding an alternative source of income for global consumption. Therefore any increase in money supply during the global slumps will not be able to prevent it, rather would take the world into the trough.

7 Most critics of economics crib that the economists are always wrong and their theories keep on failing very rapidly within years. But they do not realize that these theories are just like the new sources of salmon that we find when we are in peril. Hence when this source takes everyone out of the doom, it also gets exploited in the process and therefore in due course of time the need to discover a newer source, theory arises. Thus there can be an infinite chain of theories that would keep on taking economics further into time. An this phenomenon of failing theories is common in every science. Even physicists who claimed themselves to be perfectionists had to revise the Newtonian laws of motion when subatomic particles were discovered and further the advent of dark matter and dark energy when the galaxies were analyzed. There is no shame that the economic theories fail more rapidly than the theories of other sciences, it is just that the organism under our analysis has a higher frequency of existence in time than their’s.8 In present scenario we have observed that if a country needs natural resources like petroleum from other countries then they will have to buy it in the process of trade, but since petroleum is the soul indispensable source of energy for the whole world and also the sources of petroleum are getting exploited at a much faster rate than their regeneration, the prices of petroleum rose and hence the world economy started a downturn because we still have not been able to find an equally efficient alternative. We observed that since the oil-price shocks all the wars have occurred in oil rich states.

CONCLUSION

As the world economy is not able to innovate to feed the increasing population and their demands due to higher standards of living because the natural sources for consumption i.e. coal and petroleum are getting utilized at a faster rate and as a result their cost is increasing and will keep on increasing, the government spending would lead only to a cost push inflation and hence investments during such times turn out to be costly.

This shows that all the sources of salmon are on the verge of finishing and hence until we diversify to find new sources like nuclear power we will keep on stagnating and hence it is clear that the world economy’s downfall has begun and every subsequent crisis would be more severe than the previous. This downfall would continue until we find new sources to replenish the base on which the world economic organism is feeding or we provide a new resource altogether that can feed this giant. And we, as a part of this giant, would starve to death if it does not. So a full and safer utilization of nuclear energy can take this stagnating curve of global income to a level up. Just like if salmons of the world are not able to feed the ever increasing population9, turn vegetarian and do agriculture, if agricultural land is not sufficient enough, eat something else because, the universe would keep jumping levels and any dimension which stops innovating and jumping higher would be wiped out in this process of evolution. Development is jumping higher levels on the universal curve and it is a necessity, if survival is to be ensured.

FROM ORIGIN TO EVOLUTION OF ECONOMIES

9 We cannot apply drastic measures like population control because if the population won’t grow our specie will grow old and as an old organism has a tendency to die, so will be ours. The demography has to be maintained and the population growth needs to be positive. If a family has only one child and two parents and two grandparents, well... the future of the child would be overburdened and either he will have to kill his ancestors that are not dying or, the whole family body will starve out of existence.

If the myth is to be believed, which is by the way just to make analysis clearer, then, in a time that existed far before our ancestors, in the Garden of Eden on the Kosher Isles, Adam and Eve lived as man and wife. They led an inquisitive life, exploring a lush world around them. With the fruits to feed and flesh of beasts, they never remained famished and going by the accordance of the world, the man and wife had their child. With this the human race expanded. All they could do was fishing from a small pond to sustain their race. However, with the passing of time, they could not depend on a single source for living. The fish population started declining in the only pond on the island. They had to look for an alternative to support their living. With this came the agriculture into picture. With the lack of opportunity in the fishing activity, few people migrated to the agricultural land and found new ways of surviving. They grew crops with the short gestation period and engaged themselves with other activities like herding their livestock such as cattle and horses from pasture to pasture. People in both the activities exchanged the surplus food to have a variety in their meals.

ECONOMIC THOUGHT

Now, with this, we see that these were two economic activities going in the society － fishing and agriculture. People having surplus lying with them exchanged with each other. This in economic jargon is called ‘Barter Trade’ which existed with the double coincidence of wants. This is a simple, closed economy with no secondary and tertiary sectors. The incomes of natives were rising (in the form of more goods available to them) as earlier they were dependent just on fishing, but with the coming up of agriculture, they could depend upon two sources for living; this is what we shall call the level effect.

Over the years, the natives of Kosher Isles grew in number and continued their occupation of fishing and agriculture. With time they further learned new techniques of agriculture and started making instruments for the same. With this came the manufacturing sector operating in the economy. With primary and manufacturing sectors in society, economy grew more complex. Now people were working on agricultural lands, industry and fishing, the total income on the island grew. But however there was inequality in the society as there were people who had no job opportunity and were stuck to the fishing activity. Also people migrated between jobs and different sectors. These were the people who couldn’t find appropriate share of living from a single occupation.

With the development happening in the economy, (as we can see the more quantity of goods coming in everyone’s bucket) and more sectors growing in the economy, the economy was becoming self sustaining and people found their living within the radius of their work.

Hitherto, like all the fairytales, the economy was beautiful. But the devil was yet to come. Soon the Kosher Isles were hit by a severe drought. Since that was the first ‘Act of God’ faced by the human race, they could not understand the repercussions of it. The people on agricultural lands were the most affected as they directly earned their livings from the produce. Not just agriculture, but manufacturing industries got troubled. Industries which derived their raw material from the land ceased to exist. Earlier, people engaged in shoe troubled. Industries which derived their raw material from the land ceased to exist. Earlier, people engaged in shoe manufacturing could

exchange their commodity with the wheat but now, with scarce wheat or almost no wheat on the island, people would not trade. The crop growth diminished*. The habitat there－terrestrial and aquatic wildlife suffered a great loss. People dependent upon fisheries were one of those sections of the society that were most affected by the famine. Besides this, hunger was backed by the ominous famine this was the time when the economy was collapsing, inhabitants of the island were unable to sustain on the island and the island for the first time faced a large number of deaths due to famines..

ECONOMIC THOUGHT

Now with the introduction of manufacturing sector in the economy there was rise in the economic variables－income, employment, crop yield etc. People had access to more goods and there was the level effect as a rise in the incomes of the people. As now they had multiple resources to depend upon the graph shown in the last economic section would further go up.If we look at the population parameters, the population was going up in all these years, unless the economy was hit by the drought. We can plot the same as follows.

We conclude from the above two diagrams that the rate of growth of population on the island was always increasing. It was only after the drought that the population has fallen to the very low levels it is because many people, mostly the weaker sections of the society, died because of hunger and others migrated to other lands.Also we can see that with the innovation of new techniques in the production of agricultural products, the economy experienced its first boom ever. These were the years when we could see, expansion in output, rise in income and population.With the lack of opportunity on the island people migrated to another land, hereby to the Kosher Isles. Kansau was the place with different geographical structure and terrain. The Kansauians had different way of living and grew entirely different crops as those which were grown on the Kosher Isles.

*Manufacturing sector was not as advanced in Kansau as was on the Kosher Isles. Kansau still had primitive ways of farming. The migrated population of the islands with time adapted themselves with the new environment and founded their ways of living. However with the knowledge they possessed from their Island, they tried introducing a wave of innovation, which was readily welcomed on this new land. Over the years, settling on both the lands Kosher Isles could again see their prosperity back as the calamity receded. On the other hand Kansau saw the new set of technical innovations brought by the natives of Kosher Isles and outcome on the economy.As the time flew, people realized that if they could trade between the two islands they could have those commodities also which were not grown on their land. With this, the inter-society trade started that was hitherto confined to their respective economy.However this inter-economy trade was still the Barter trade. Now people on Kosher Isles could have

Bananas by trading fish with them.

With the above model of our hypothetical economy which started with Adam and Eve, grew as a self sustaining economy and then finally opened itself beyond its geographical boundary and started trading with the Kansau lands, explains us well how the economy works. With this mode, we will try to explain the structural and fractal analysis of the economy. We’ll also throw some light on how the economy develops facing the bursts and booms, which we technically call a business wave.Let’s go back to the lush green island and see how waves work in the economy. We saw how agriculture grew as a part of economy’s most important structure. The yield of the land was increasing in the long run even though it might have seen small periods of decreasing yield. This is what an economist calls the ‘harvest cycle’ which acts on the economy periodically or quasi-periodically. We will see how the harvests will affect the general business cycles (Kitchin cycle, Juglar cycle etc. we will be analyzing these soon). The variation of crop or the deviation from the quantities are under the influence of either innovation in agriculture or under the influence of weather, plagues etc. It should be noted here that harvest cycles are relevant from a welfare point of view rather than prosperity. What matters for the burst and boom is the influence on values and incomes of the people. This can be explained by the fact that if the abnormal produce on the Kosher Isles sells for the same quantity of goods in return (prices in our world) then there will be no effect of the produce. However the disturbance will occur if people spend more or less for the same, as it will lead to change in income and expenditure. Nevertheless, we can see the effects of agrarian sector on other spheres too. There were times when the Kosher Isles saw supernormal crops. During the supernormal harvests, farmers tend to expect bigger receipts. They may borrow and spend promptly, beyond the requirements of harvesting. This tended to increase the trade on the island and therefore move the banking activity. This fostered the business all round. Moreover, many industries will by their own initiative, prepare for meeting farmers demand and will also borrow and expand. Also we can conclude with the opening up of two economies, their trade might have also increased with the supernormal crop. These fluctuations occur even if no external factors act upon them. These cycles vary historically and geographically. What is important is that at some times and in some countries they may dominate the observed fluctuations. We’ll now look upon other reasons of fluctuations which make the waves more elastic.

Innovation is one such cause which varies the output in agrarian sector and other sectors as well. We can create an analogy to explain the effect of innovation on waves. Let’s imagine a vessel into which water flows at a perfectly steady rate, but which is so constructed that it releases the water by a valve each time a certain weight has been accumulated. Innovation is one such valve which causes impulses in the economy. We can see how the coming of agricultural tools on the islands expanded their production. This was probably the boom period of the economy. But what we are trying to explain is that a wave is completed when it experiences both its upswing and downswing, i.e. the wavelength of the wave. The island saw its downfall when it was hit by the drought. It was then that people migrated and started trading with another economy. This is the fractal tendency of an economy. One self sustaining economy grows into two. Now the economy consists of two lands with different societies and habitats. With this we are reminded with the same analogy created in the beginning of the paper. As the girl grows, her body system grows more complex and demanding. Similarly the needs of an economy differ now from the time when it was an isolated closed economy. However there is some more time for the girl to mature and establish herself in the economy.

Again going back to our self-created economy, we see that over the years, the society grew and spread out. People migrated to new lands leading to a rise in population as well. Now the economy comprised not only

of two lands, but many lands with different geographies and culture. The economy as a whole diversified. Few have deserts, few comprise of mountainous regions, few have the benefits of coastal sides and oceans and others have plains as their terrain. Each economy had different needs of their people. As we can see from the diagram below that the economy now comprises several small economies. Also, each economy was inter-dependent on other.

For example Dhinim Deserts had oil resources/reserves which it traded with other economies for cotton, heavy goods, fruits and vegetables. No land was completely self-sustaining that could not survive without trading. A partial picture of this economy can be seen in today’s everyday world where we have hundreds of economy and each economy inter-linked with each other to make a complete economic picture.

In the due course, human migration in search of living and new economic opportunities was evidenced. Production of goods and bartering them for the basis of life is still the basis of economics. With the trade going more complex, there was a need of money in the economy which could solve the problem of double coincidence of wants. So with the course of time we see that first the commodity money came into the economy followed by paper money which we can see in today’s world. However we cannot claim that credit system does not exist in barter economy. The credit system was based on the quantifiable notion of “I owe you X units of something.” Therefore we can see the existence of banking and credit and in those primitive civilizations too. But our center of attraction is not the evolution of banking system but the evolution of the economy and banking as a part of it. But before discussing the technicalities of business cycles further, we would like to show how the fluctuations come about.

For this, we would take an example of income-investment model. Suppose that movements in income have cumulative tendencies that these movements are prevented from going beyond a certain point in either direction by the existence of boundaries or “buffers”. Let’s say that buffer comes when full employment of labor is reached. When this point arrives further growth of output becomes physically impossible. It might be thought that this income may stay at high level forever, but the acceleration principle prevents it. Income can remain high only so long as investment is high and investment remains high as long as income is rising.10

Once full employment ceiling has halted the rise in income, it ceases to be necessary to add to the stock of capital and net investment falls of nothing the fall in investment pulls down income through multiplier, an investment appears to reduce the stock of capital, and the cumulative expansion turns into cumulative contraction. This lowers buffers in a similar fashion. Such buffer could happen if the gross fixed investment has fallen to___ therefore the system will oscillate between its lower and upper limits; it bounces from one buffer to another, its inherent instability would be preventing it from coming to rest between them.

So this was one example how waves work in the economy. Also there are erratic shocks seen in the economy which are seen at the particular time lag. These erratic shocks can be seen as wars, technological innovations, political upheavals, earthquakes etc. The continued occurrence of these will sustain the cyclic tendency when it would try to disappear and will prevent the system to react cyclically to any disturbance will impart a cyclic movement over time, even though these shocks themselves occur at random intervals.

10 Business Cycles Oxford Handbook

Insofar, we have discussed how the upswing and downswing occur in the economy, but there are many waves simultaneously going on in our economy. There is no reason why the cyclic process of evolution should give rise to just one wavelike movement. On the contrary there are many reasons to expect that it will set into motion, an indefinite number of wavelike fluctuations; an indefinite number of wavelike fluctuations which will roll on simultaneously and interfere with one another in the process. There are fluctuations of different spans and intervals which seem to be superimposed on each other. Having said that, now we fall with the general tendency of business cycle.Spectacular booms and spectacular breakdowns were always the center of attention of the economy. The problem thus presented is the problem of crisis. These are primarily looked upon as individual catastrophes, interrupting an even flow of expansion. The monetary theories developed in the late 19 th

century are of overproduction underproduction etc.

Clement Juglar was the first to have a clear perception of how the waves worked in our system. He discovered that prosperities and liquidations are bound to occur in our economy and that the latter is a result of former. He worked with banking figure, interest rates and prices and created the very wave process. In or hypothetical economy we can see that the Juglar cycle started when the technical innovations were introduced on the Kosher Isles. This was the inducement of impulse in the economy. The wave was carried on further when the economy was opened up further.

Clement Juglar was the first to have a clear perception of how the waves worked in our system. He discovered that prosperities and liquidations are bound to occur in our economy and that the latter is a result of former. He worked with the banking figure, interest rates and prices and created the very wave process.Another wave working in the economy is the Kondratieff wave or the long waves, characterized by capitalistic process. The first Kondratieff wave was experienced at the end of eighties or beginning of nineties of 18th century to 1844-51, the second from 1844-51 to 1890-95 and the third from 1890-96 onward. The third wave which we will site in our paper is the Kitchin wave – the existence of which can be seen in all the time series and is the most visible and regular of all. Joseph Kitchin studied this with the wholesale prices, interest rates, bank clearings.Few causes of these fluctuations are described in this section. Innovations are the root of cyclic fluctuations and these cannot be expected to form a single wavelike mount, because the periods of gestation and of absorption of effect by the economic system will not be equal for all. Alongside the innovations that are undertaken at any time, there will be innovations of relatively longer span and along with them others will be undertaken which run their course on the back of the wave created by the former in shorter periods. When a wave of long span is in its prosperity phase, it will be easier for smaller waves which will correspond to less important innovations to rise as long as the ‘underlying’ prosperity lasts. While in the depression phase of the underlying wave, it may be impossible for them to rise visibly at all, although they might ascent by softening that depression through their prosperities. Variations in expenditure within each class will compensate the effects of variations in expenditure occurring in all contemporaneous cycles. These cycles will displace each other’s peaks and troughs between them.

When some innovation has carried out, the next wave is much more likely to start in the same or a neighborhood of that wave. Major innovations hardly ever emerge in their final form. The rail-roadisation, the electrification are few such examples. One railroad or a few lines have successfully built, then its reaction and absorption may have to follow a new wave of railroad construction becomes possible.

Let’s content ourselves with the three classes of cycles namely Kondratieff, Juglar and Kitchin. One reason to choose these cycles is that each represents long, medium and short cycles respectively. Historically, the Kondratieff was covered by the material means. The first stretch from late 18 th century to 1842 is said to be the industrial revolution. The second stretch from 1842-1897 is called Steam and Steal stretch. Each Juglar cycle is associated with the “big” crisis attached to it with definite innovatory processes in industry and trade. Kitchin cycles, on the other hand, are fluctuations of adaptive type. Innovations, their immediate and ulterior effects and the response are the common “cause” of all of them, although different types of innovations and different kinds of effects may play different roles in each.We will now postulate that how many Juglar constitute one Kondratieff and how many Kitchin will form one Juglar. The warrant for this is in the nature of circumstances which give rise to multiplicity.For example: If waves of innovation of shorter span play around a wave of similar characters but of longer span, the sequence of the phases of the latter will also determine the conditions under which the former rise. The fact that the units of a cyclical movement of a certain order cannot be considered as independent it should be noted here that each short span fluctuation gets disturbed by the effects of the longer waves in progress. In our three-cycle schema, it is Kitchin which is affected by Kondratieff and Juglar. Juglar is the intermediate cycle between the two. Even so, it is clear that the coincidence at any time of corresponding phases of all 3 cycles will always produce phenomena of unusual intensity, especially if all phases that coincide of prosperity or depression. If we go in history, the three longest and deepest ‘depressions’ were 1825-1830, 1873-1878 and 1929-34. As stated by Schumpeter that there are six Juglar in a Kondratieff and three Kitchin in a Juglar. However we are unable to show the precise relation between these cycles but we can see that waves are simply the result of small disturbances magnified by self-reinforcement are thus ‘elastic’ the elasticity can thus be given by

2'

''

c

Q

f

f

Where,f(Q)=RcosKQ + SsinKQϕ(t)=TcoscKt + UsincKt

Where R,S,T,U are constants.

So far, we have discussed the external factors more affecting our business cycles mainly Kondratieff 1. wars and revolutions, 2. Entering up of new economies into world economy and 3. Fluctuations in gold.We will discuss these factors one by one.

Wars and Revolutions influence the economic development very strongly. These wars originate from real, especially economic circumstances. They generally follow during the upswing in the economic waves. Much more probable is the assumption that wars originate in the acceleration of the pace and the increased tension of economic life in the heightened economic struggle for markets and raw materials and that the social shocks happen most easily under pressure of new economic forces.

Opening up of New Countries for the world economy is also one of the factors influencing waves. In our hypothetical economy of Kosher Isles, We saw how the Kansau land entered the economy. Similarly after few hundred years more economies enter trade. Those were the times when the new wave of Kondratieff would have started leading to development. It is important to note here that limits of expansion of the world economy are determined by the degree of urgency. A new upswing will make the exploitation of new countries, new markets, and new sources of raw materials which will accelerate the pace of economic development.Discovery of new gold mines, increase in gold production and consequent increase in the gold stock can be regarded as an important factor influencing the long waves. An increase in the gold production leads to ultimately a rise in prices and to a quickening in the tempo of economic life. But these are few caveats of the above said statement. The discovery of gold mines and perfection of the technique of gold production are accidental. What is important is that when is the value of gold to that of other commodities most favorable for gold production. We can decipher from our previous discussion that the commodity prices reach their lowest towards the end of the long wave. This means that at this time gold has its highest purchasing power and gold production becomes most favorable. In reality, the gold discoveries and technical improvements in gold mining will reach their peak when the long wave has already passed its peak. The increases in gold production will take place somewhat earlier at the end of downswing of the long wave.Having stated the main factors affecting the impulse of economy, we would like to draw your attention towards the psychological behavior prevailing in our society. There is no doubt that people have evolved over time. We can see in our hypothetical economy that earlier people were satisfied with what they derived from the island. But with the environmental changes and other changes in the society, their needs changed. They started trading with other economies. Also over more years there was a change in their attitudes and behavior. It is said that economics and psychology go hand-in-hand. Economics has conventionally assumed that each individual has stable and coherent preferences, and that one rationally maximizes those preferences. But psychological research suggests modifications to this conception of human choice. We’ll see how the business cycles are affected by Psychological factors.For this, we would like to take the example of inflation. It has been seen that inflation in itself is not determined to an economy. It is the post inflationary collapse that is assumed to be the main disadvantage of inflation. We must recognize that inflation disorganizes production and distribution because it upsets business cost calculations as well family budgets. It brings an arbitrary and inequitable redistribution of incomes and wealth. But on the contrary inflation brings with itself higher production and economic advancement. This generally happens during the upward phase of the business cycle and is termed as

prosperity. Expansion in production and sales, incomes and profits represents the most favorable economic climate. So why stabilization at this point not considered the aim of economics? This is because the stationary economy is of necessity to a declining economy. The desire for advancement and growth is the most powerful incentive for human behavior. But once the upswing has occured, downswing is bound to happen.

c

b d

a

What we need to focus in the session are the turning points of the wave due to psychological factors. When one producer or distributor has succeeded in expanding his business volume, his competitors have a great incentive to do the same in order to keep their share in the market. Expansion is accompanied as well as stipulated by a favorable general economic outlook and in turn gives rise to it. Cumulative expectations arise with business volume and incomes as well as to prices. This all will reinforce optimistic expectations in the economy. This is the explanation of point ‘b’ in the diagram. A similar explanation can be given for the downward swing. Curtailment of business activity reduces the flow of incomes and is not only caused but also generates pessimistic expectations.Point ‘a’ and ‘c’ can be explained by the overinvestment theories. Overdevelopment of industries producing capital goods is thought to be primarily responsible for the upper turning point. “Under-consumption theories” can also be blamed for insufficiency of Purchasing power due to “over-saving” for the termination of the upswing and the collapse.

To conclude this point people’s reaction will depend on their frames of reference and their attitudes. In different phases of the cycle, attitudes, expectation and the length of people’s time perspective will differ and will affect their understanding of changes in the environment. We must reinforce all the factors.

Let’s Juggle

(Future predictions)

Coming back to our real world we can see cycles occurring in our economy. Let’s go back to the decade of

90s when the dot com bubble arose. It was a historic speculative bubble spanning across 1997-2000, roughly. Venture capitalists saw record-setting growth as dot-com companies experienced meteoric rises in their stock prices and therefore moved faster and with less caution than usual, choosing to mitigate the risk by starting many contenders and letting the market decide which would succeed. The low interest rates in 1998–99 helped increase the start-up capital amounts. A canonical "dot-com" company's business model relied on harnessing network effects by operating at a sustained net loss and to build market share (or mind share). These companies offered their services or end product for free with the expectation that they could build enough brand awareness to charge profitable rates for their services later. The motto "get big fast" reflected in this strategy. By 2001, the bubble was deflating at full speed. A majority of the dot-coms ceased trading after burning through their venture capital, many having never made a profit. Investors often referred to these failed dot-coms as "dot-bombs".

After this, the housing crisis occurred in 2007. The United States housing bubble was an economic bubble affecting many parts of the United States housing market in over half of American states. Housing prices peaked in early 2006, started to decline in 2006 and 2007, and reached new lows in 2012.

Economists have been saying for years that they believe the period of 2016-2018 is the start of an overwhelming financial crisis, possibly much worse than the 2000/2001 stock market collapse, and the 2008/2009 credit crisis. 2016 appears to be the peak of the financial markets and economic escalation, with the giant reverse beginning as early as 2016 and as late as 2018, but more likely as late as 2017.Their view is that there will be temporary downturns during the next major long-term upswing in the financial markets, which we believe will started as early as late 2010. By late 2011, the U.S. financial markets will have begun a dramatic, long-term escalation, but of course you will see occasional, now-common, heavy volatility along the way. Economists believe that between 2011 and 2016-2018, the time period will be known as the roaring teens period for the financial markets (especially the U.S. markets), and thus for the world’s major economies, and that many people will forget about the fact that booms frequently end in busts, especially when the foundation of the recovery is built on unsustainable economic policies.

What’s currently happening in Greece may foretell the imminent. The Greek government has been spending and borrowing way beyond its means for years, is being suffocated by debt, and is all but bankrupt. 25% of the Greek workforce is government employees and many have fat pensions and full retirement benefits: 14% of Greeks are government early retirees (at age 50 for women and 55 for men), with the average retirement age of 61. Unfortunately, too many Greeks have become used to excessive government entitlement programs and since such programs have to be downsized to deal with economic reality, they are outraged.

What we can observe here is that after every 10 years a crisis is happening-first in 1997, then in 2007 and now finally in 2016. This cycle will move further. There may be a crisis in 2026 or it may not. We cannot surely say that but this is a model of how we can experience the Juglar cycle in our everyday life