Reality of crisis-proof economy



Economics as an exact science has not yet been developed. This is confirmed by the fact that the major economic phenomenon – economic crises – has no comprehensive explanation. This is accounted for by the lack of an appropriate mathematical description of economics, which is natural, because none of the mathematical tools used in economics allow giving such a mathematical description.

Firstly, all of them are aimed at the investigation of mass phenomena, because the economic behavior of an individual is unpredictable. For instance, Sir Isaac Newton wrote on the issue that simulating human behavior is a more complicated task than predicting planetary motion. However, try to imagine the development of radio-electronics, if it refused to study the processes in radio-electronic components comprising all complicated radio-electronic systems due to the unpredictable behavior of single electrons.

Secondly, the methods for analysis of economic situations widely used at present – graphical, statistical, econophysical – allow defining only states, and not processes.

Processes are defined by differential equations, which have found quite restricted application in economics.

This is why, using the term introduced by William Ross Ashby, economics can be referred to as ‘the black box’ and studied using the methods borrowed from the exact sciences. In particular, the term ‘the white box’ introduced by Norbert Wiener can be used; it corresponds to the object under investigation where processes identical in terms of their mathematical description to those in ‘the black box’ are observed. Moreover, mathematical description of the processes in ‘the white box’ is available. That is, basically, the analogy approach is used.

Unfortunately, ‘the white box’ in the exact sciences has not yet been found for the current market economy. This is how complicated and unique economic phenomena are. Nevertheless, ‘the white box’ does exist for the economy reformed as suggested below.

However, to begin with, let us find ‘the white box’ not for economics in general, but for the basic process, which is the ‘goods-money-goods’ process. The author demonstrates that this process is potentially oscillating and can be described with a second-degree differential equation with constant coefficients, similar to the mathematical description of the process in a radio-electronic oscillation circuit. That is, an electric oscillation circuit can be used as ‘the white box’ with regard to the ‘goods-money-goods’ process.

However, such an oscillation process is unknown in the economy and has never before been implemented. The matter is that its implementation requires special conditions which cannot be created in a random way. Similarly, for instance, TVs and cars are not assembled at random, houses and bridges are not built in a random fashion, and food cannot get into a supermarket randomly, and so on. Any constructive activities always require certain knowledge, and economics is not an exception.

In this respect, it is quite natural to ask whether economics needs these oscillation processes and the respective knowledge about them. Actually, it does, because only in this case money works all the time and most efficiently. Otherwise, there is always either shortage or surplus of money. As for oscillation processes, they are preferred and widely used not only in economics, but in nature and the exact sciences, as well. Here belong, for example, rotation of electrons around the nucleus and the revolution of planets about the Sun. Nothing can exist without the oscillation processes. Therefore, they should not be ignored in any science.

However, due to ignorance of these circumstances, the actual economic process ‘goods-money-goods’ is described not with a linear differential equation with constant coefficients, but with a linear differential equation with variable coefficients, which is often referred to as the parametric differential equation. This is accounted for by the aforementioned unpredictability of human behavior, or the human factor, which was referred to as ‘the invisible hand’ by Adam Smith. For this reason, the coefficients of the parametric differential equation describing the real ‘goods-money-goods’ process are not just functions of time, but random functions of time. Therefore, these differential equations have no analytical solution. As for the market economy which is described by systems of these parametric differential equations, it is unpredictable; this is why economic crises in it are inevitable.

Consequently, in order to be able to prevent economic crises, it is necessary to reform the economy. To this end, it is necessary to create the conditions providing for minimization of the human factor. The author suggests new economic tools enabling to solve the problem. Here belong business-interfaces, which provide for minimization of the internal human factor, and the new global information network free from the shortcomings of the Internet, which provides for minimization of the external human factor. The latter offers its users numerous business- and intellectually-oriented services.

Socialist economy also provided for the successful suppression of the human factor (at that, contrary to business-interfaces, human rights and freedoms were suppressed, as well). Nevertheless, it was a prosperous economy. Therefore, business-interfaces must provide for linearization of the actual ‘goods-money-goods’ processes, i.e., for minimization of non-linear factors.

The economy reformed as suggested above will become crisis-proof, and economics will become an exact science similar to the theory of electric circuits and systems, which is ‘the white box’ with regard to ‘the black box’ of economics.

