Meaning comes from mean

Our theory is the opposite of the mainstream economic theory in many ways. Many smart people work on the mainstream theory. It must be a smart theory. Can you be smarter than all those smart people? To this, we have to know the purpose of a mainstream theory.

Marx once said that the dominant idea in a society is the idea of the dominant class. The mainstream economic theory is the economic theory for the dominant class, a powerful minority. Our theory, on the other hand, is based on the averaging of the whole population, most of whom are average people. Different theories represent different perspectives.   

Many may feel a perspective from the elites is a smarter perspective. This might be true. But meaning comes from mean, or average. Temperature is the average kinetic energy of gas molecules. Pressure is the average momentum of gas molecules. In general, properties of a system are determined by the average aggregate behaviors. Our theory may or may not be a better theory than the mainstream economic theory. This is a subjective assessment. But our theory is a more accurate description of the reality.

To be more specific, we will discuss theories of value. In mainstream theory, value is determined by marginal utility. (Marginal utility is not an averaging property. Similarly, in mainstream production theory, production decision is based on marginal cost. Marginal cost is not an averaging property.) The utility theory is derived from two person economy by Stanley Jevons. The idea breaks down in a multi person economy. As a result, the concept of Pareto optimality is introduced. In practice, any system that has existed is Pareto optimal. For example, North Korea is Pareto optimal because Kim’s family, the ruling family, favors such a system.

In our theory, value is defined by entropy. The concept of entropy seems mysterious. But it is simply the averaging of various states. Value, defined as entropy, is based on physics and physical resources. Value, defined as entropy, has a simple mathematical representation that is highly consistent with economic and social reality.

In relation to physics, early pioneers on mainstream economics seek analogy to physics. When this fails, explicit comparison with physics gradually faded away in economic literature. Instead, emphasis shifted to mathematical rigor, represented by Arrow Debreu model and its offshoots. Our theory is based on physics and is consistent with physics. We don’t seek mere analogy.

The mathematical tools adopted are also different. Early pioneers of neoclassical economics were inspired by rational mechanics. They adopt the mathematics of rational mechanics. Our theory, on the other hand, is based on statistical mechanics. We adopt the mathematics of statistical mechanics and quantum mechanics.

Current researchers in mainstream economics do adopt wide range of mathematical tools. But the core of the mainstream economics is built on the concept of equilibrium, a concept from rational mechanics.