MANIFESTO OF THE NEW ECONOMIC THEORY

If you are interested in my theory, outlined in the MANIFESTO OF THE NEW ECONOMIC THEORY then I can write a book or an article for your order to be published in your journal.

Andrey Shvets

MANIFESTO OF THE NEW ECONOMIC THEORY

Introduction

Authority of the well-known economists, professors and thick textbooks suppress  a feeling in us that we are missing something important when studying modern economic theory. But  an unbiased person always has the feeling that the proposed explanations are very superficial and do not affect the essence of things. 

So if the working mechanism casts a shadow on the wall, you can not understand the principle of operation of this machine, if you look only at the wall. The true reasons of the changes will not get In our field of vision. We will build our theories about how the shadow of one movement leads to another movement, but the mechanism operates in cycles, all repeats, and we can easily interchange shadows, causes and consequences of the shadows. 

Have not you noticed how hard it is to understand what is primary and what is secondary for modern economic theory? And that the same cause may produce the opposite effect? Economic science tries to study the shadows on the wall.

To understand the operation of the economics it is necessary to determine the basic goal of any development, including economic. On the basis of understanding the purpose of creating a theory of value, and  armed with it to study the cause and effect relationships in the economy. 

In this paper, I have formulated a new theory of value. And on the basis of it.  I have proposed new economic theory postulates that contradict many of the usual convictions. I hope that the  declared  approach in the "manifesto" to the study of economic phenomena, will give a new impetus to the development of economic science.

Chapter1.Theory of Value

The cause of the current economic crisis is that no one understands the essence of money. The general feeling is that money is the equivalent of something important, but no one knows what. These pieces of paper symbolize something.  But what? Influence, power, possibilities, warranty, fun ... what exactly? No one really knows.

Money - only a shadow cast by a substance that controls life of people. But without knowing what kind of substance it is, people worship its shadow. Economists and politicians narrow this shadow, then expand it, then shift to the left, then to the right. But these actions are meaningless and ineffective, because they distract from the main thing, which is the true value of everything.

Economists  trying to influence real value by paper symbols of real cost are like a dog chasing its own tail. Ignoring the establishment of a logical theory of value, has led to the fact that all the problems in the economy one tries to solve with the help of monetary means. But to influence the real economy and the real value trying to manipulate with money is the same as to affect the cause by consequence. Short-term improvements for this may be due to unsound hopes, but these hopes will soon to be destroyed.

Of course, the earlier attempts were made ​​to create a theory of value, but not very successful. For example, the theory of marginal utility indicates a change of value, not its content. A labor theory does not correlate with the observations of the elementary fact that the value of the product does not always correspond to the effort.

The main substance governing people is freedom. But freedom not only in the political sense. The more a person has opportunities, the more he is free. And the greater the possibility that he will use these opportunities, the more he is free. For example, if a person begins to experience hunger then the possibility that he will read, play music, or play sports decreases .The more a person is hungry, the less free he is. Therefore, the cost of food is gradually increasing for him.

The food restores his freedom, and the more he was hungry, the more freedom is with food. Thus, the value of the product is measured by the freedom that it gives or returns.

Any strong desire reduces the freedom of a man, and the more freedom he returns to himself having obtained the desired product, the higher the value of the product is. Even if this product - the usual glass beads.

But the product may increase a person's freedom objectively, allowing him to travel, to receive information, to practice arts or sports. In any case, the value of goods - freedom, obtained by a person together with goods.

If one person is thirsty and has thus left the food and the other person has left the water, but he is hungry, then exchanging water and food, they both increase their freedom. This is the essence of exchange. All participants increase their freedom.

If people's actions are controlled by the desire to obtain greater freedom, it is logical to assume that freedom - the purpose of long-term development and the main criterion of progress. It may be argued that a savage had more freedom than a modern man who has lots of restrictions .But, in fact, we  giving away part of our freedom in the form of numerous constraints  obtain the freedom much greater.We may be interested in the sciences, travel, work in various fields, get involved in arts, etc. At the same time, a savage could only spend all the time in the struggle for survival.

Now we are close to understanding of what the equivalent of money is, but we will study two more properties of freedom, each of which has an impact on the patterns of economic development.

The first property.  If you desire to increase freedom - the law of development, then freedom can only grow in cycles. So if a thirsty person sees a well, then he will definitely go to it. He is not free in his choice. The paradox is that man is not free when he is driven by the desire for freedom, so temporarily the level of his freedom reduces, but only to increase afterwards. This is similar to an investment: before you get the money you need to lose it, i.e. you have to invest.

The second property. The greater freedom, the more possibilities. And more opportunities to further increase freedom. People comment this as "money makes money."And, therefore, freedom increases exponentially, which explains the rapid acceleration of the development of civilization, which we are now witnessing.

From the above, it is clear that money is the equivalent of freedom .But only the equivalent, not the freedom itself , the fact very often overlooked  by economists, and politicians .But  this is still not the definition of money.

Freedom - a very subjective concept. The greater it is, the greater the opportunities are, and the more these possibilities are equally possible. But in fact it is the definition of information entropy.

Now there is a confusion of the concept of entropy, which is considered to be  a measure of chaos because of the misconduct of parallels with the thermodynamic entropy. Although this kind of entropy is a measure of the freedom of the individual atoms. More information about this can be found in the Appendix. Now we just accept as a fact that the entropy is a measure of freedom, and money is the equivalent of entropy.

Chapter 2. Return and the increase of entropy

As it has already been mentioned, the goods in the exchange process can bring  or return entropy. Let us consider the first case.

As soon as a person increases the desire to get hold of a particular commodity, his entropy decreases. And, if we speak about some physiological needs, then  it decreases exponentially. First, slow pace, and then faster and faster .When satisfied, the person regains his previous level of entropy.

It would seem that there is no progress in this process. But this is not the case. Due to the fact that entropy decreases and a human desire increases, a man is ready to exchange this desired item to his job. Suppose that due to the promotion all the inhabitants of the state began to crave  for colorful glass beads. Their entropy decreased, they only think about how to get beads. At the same time they appreciate their work much less. Now, palaces, pyramids can be erected, canals can be built for those multi-colored glass and so on.

Now imagine that all the people of the state are provided with everything , nothing is in shortage, they do not experience hunger or a strong desire to get something. Because they do not need anything , residents of this blessed state will assess their work  greater  than any of the proposed benefits, and they will do nothing. The state and the economic system will fall apart. And very soon they will be captured by more hungry neighbors.

For successful economic development, the residents of the state should want something, there should always be the deficit of something . For a long time, the driving force of economic progress was the desire of people to satisfy their hunger. But now, in many developed countries the situation has changed. In order not to lose the economic competition between countries with cheap labor, these states should cultivate new desires in its citizens. It is necessary to create new "glass beads", having made the pursuit for new opportunities not less strong need than physiological needs.

Now consider the process of entropy increment. In this case, people are driven to increase their freedom, their entropy. And for this, you must first invest entropy, reducing its level, in order to get it back together with dividends. That is, people first set a specific task  before themselves, and then begin to solve it reducing their freedom temporarily.

Please note that in the return, and in the increment of entropy, the most important phase of the process is the decline phase of entropy .In one case, when there are desires and aspirations, in the second - to take steps to increase the entropy. In fact, it is a temporary decrease in the level of comfort. This is very important because the dominant ideology of a consumer is that he considers the ideal situation with constant increase of comfort and satisfaction of all desires .But if this is achieved - the development will stop. Much more important is to be able to stop consumption, only then you can manage this consumption.

And it should be noted that the return and the increment of  entropy may be mixed in one process.

Chapter 3.Entropy, GDP, money supply

Thus, entropy is a measure of freedom, and a measure of entropy in the modern economy is money. However, it is not the money spent but the money that can be spent. Freedom grows only in the case when there is money that we can spend at our disposal and if there is some uncertainty. Squirrel  running in the wheel is not free, despite the constant movement. And the cash flow is not a measure of freedom and opportunities.

We can say that money is the "canned" entropy. Thanks to the money exchange process is stretched over time .Giving your product, a member of the customary exchange gets another one and thereby increases his entropy. But with the money he can get money for his goods, the money that he will spend on any goods at any time afterwards. Moreover, his entropy increases at the moment when he receives the money, and remains so when he buys a product for money.  A product just modifies, turning money into a product.

Entropy level of society corresponds to the value of the money supply. But it is adequate. Money itself is not the entropy. Therefore, if the same level of entropy doubles the money supply, the value of money is reduced by half. Turnover of money does not affect its purchasing power. We can mentally stop all payments and mentally ask all citizens to give all their money (and, of course, securities) for the purchase of something very important. All the collected amount will be equal to the total entropy of the state, and this will be assessed as the degree of economic development.

Contrary to popular belief among economists, accelerating the turnover of funds has no effect on their value directly. Imagine that the rate of turnover of money  is doubled, and the money supply drop by half. According to the ideas of classical economic theory, the purchasing power of the monetary unit must remain the same and the exchange rate also should not change. For the most part nothing has to change. But if you need again to combine all funds to purchase something extremely urgent, the collected amount will be two times less than the same. The country is impoverished by half, by half its capabilities, its freedom and its entropy. But scientists and economists did not notice this.

As well as at the same turnover, the company can be profitable and unprofitable, and GDP may rise or fall, but it is not directly due  to the economic growth Therefore, economic incentives, the only criterion of  which is the growth of GDP  are so ineffective. To orient  in the economy according to  changes of the GDP - is like going blind.

GDP is not a measure of entropy, freedom, and therefore, is not a measure of economic development and not an indicator, which should be equal in every way. This measure is cash, which subjects have the right to dispose of at their discretion. Economic growth requires investments. And then the investments are spent on the purchase of materials, payments, etc .that leads to increased growth of GDP but this increase - only the consequence . They sometimes say that then  the stocks may not be invested, then they will simply be  taken out of the economy .This is true . Stocks themselves express the uncertainty, because it is unknown how and when they will be spent, which is why they are the equivalent of freedom, without which there is no development . And in order to influence the economic growth we need to stop measuring the economic processes only by cash checks.

As noted in Chapter 1., if freedom and entropy- a measure of development, and all under the sun tend to increase them, then they can only grow in cycles. That is in the way of moving the system to a state of greater freedom, the level of freedom is reduced. Once again, this process is comparable to the investment. We must first give out some freedom, so that to get it at a higher level.

GDP and entropy are interrelated, and trying to straighten the line GDP  we align entropy  too. But the decrease in the amplitude of oscillations of entropy means a decrease in investment, in comparison with possible. Hence the growth rate is slowing.

Entropy is more closely related not  to the GDP, but to the value of the money supply .This relationship can be expressed by the relation:

ΔE = M2-M1 * Ir

Where ΔE - entropy change for the period;

M1 - Money supply at the beginning of the period;

M2 - the money supply at the end of the period;

Ir-real inflation for the period.

And it should be noted that  entropy has the role of the "conductor" in this equation. It is its change that results in a change in the money supply and inflation, but not vice versa

Chapter 4. Error of  Keynes

The great mistake of modern economic theory is that consequence is taken for cause .This misconception is based on the theory of Keynes, and therefore leads to absurd conclusions.

Usually when they want to describe the principle underlying the Keynesian theory they describe a society in which all citizens produce quality and goods on demand, but everybody is in trouble, because due to the lack of money no one can buy this product .Now, if we give one of them $ 100 and he will buy  boots for it, then the GDP will increase by $ 100.Then a shoemaker will buy a tool from a blacksmith for the same money, and GDP will increase by$ 200 now. A blacksmith  will buy grain, etc..Thus, the $ 100  will not only bring happiness to all, but will also lead to an infinite growth of GDP .Absurd.

Of course, there is a confusion here .Actually a purely operational problem is described here  where you can not exchange the goods, otherwise than through cash, but nobody has the banknotes. However, this situation is a very theoretical one. If there is a highly demanded product, people will find a way to exchange it, especially in the current conditions of diversity of the payments and settlements.

To somehow mitigate the absurdity of the above situation, when $ 100 leads to an infinite increase in GDP, the followers of Keynes, suggest that this case – the ultimate case. And that in fact the GDP will not grow indefinitely because (and only because) a shoemaker and a blacksmith will not buy anything  for all the money,  and some of that money will be obligatory deposited. For these followers, "not-eating" all resources is a negative phenomenon. It is hard to imagine a more devastating statement for the economy. So it is no surprising  that the world brought up on Keynesian theory is vulnerable to economic crises.

"Eating away" money being poured into the economy leads to a temporary increase in GDP, but the entropy itself is not growing, but  it is only redistributed. And so when the economy makes sure that it is "empty" money, everything will return to even worse state, because the crisis did not stop. To prevent it, it is necessary to increase the entropy, and for this one needs  money, which society can invest, the money that the shoemaker and the blacksmith deposited . It is this money  that will bring freedom of choice and opportunity. Hence such an accumulation of funds is a positive factor . But a modern economic theory, which absorbed incorrect postulates of  Keynes, continues to lead the national economy to the wrong direction, focusing on GDP as the main criterion and flooding the economy with "empty" money.

Economic growth is accompanied by an increase in GDP, but the cause is the change in entropy, change in GDP - a consequence. An attempt to replace cause and consequence leads to a primitive fetishism. As a savage imitates thunder to cause rain, and the government stimulates the demand, hoping to trigger economic growth.

I think it would be more useful to repeat the words of Keynes's notion that in a crisis a state should behave as "the last big spender."  Not the investor, not the creator, not an entrepreneur - a spender. Maybe this phrase very clearly expressing the Keynesian approach would worry politicians and society, and would give rise to doubts about the strength of this theory.

Chapter 5. Inflation

At the inertia of value of money supply, a key indicator of entropy change is inflation, for which you can write the following expression:

Ir = (M2-ΔE) / M1

At constant money supply, reducing the real entropy leads to an increase in inflation and the increase of entropy – to a decrease.

In the formula real inflation is used, but in practice, economists measure the nominal inflation. If there were an ideal mechanism resulting in the accordance of money supply with the entropy of the society, the measured (nominal), inflation would always be equal to the real one. So an increase in the money supply in half would lead to inflation of 100%.But this mechanism is not available . The purchasing power of money is being brought into line with the available entropy in transactions .Such a mechanism "sees" only the amount of money in circulation. This volume is less than the total money supply, so the measured (nominal) inflation is different from the real one. For example, to change the entire money twice, may not affect the nominal inflation if only stocks increase, and the amount of money in circulation will not change. However, this distinction between real and nominal entropies is very dangerous. At any time, the reserves can be set in motion, the nominal inflation will start to rise . With the increasing nominal inflation people will want to convert their cash reserves into commodities and real estate. The amount of money in circulation will grow like an avalanche, and inflation starts to rise, during which stocks can depreciate .People and companies will find themselves in the position of the entropy trap which is difficult to get out from.

Such a situation has led to the Great Depression, when huge reserves of impaired assets in the form of securities depreciated . And now the U.S. government is making enormous efforts to huge external "reserves" in the form of dollar supply in circulation abroad, so that these reserves were not involved in the internal circulation and would not have caused the depreciation of the dollar and the reserves.

We write the formula for the hidden inflation:

Ih = Ir - In

Where Ih - hidden inflation;

In - rated inflation;

Ir - real inflation.

Government must constantly control the value of the hidden inflation, which is a "time bomb", avoiding excessive deviations.

And again, back to the  misconception  about the level of inflation depending on the rate of turnover of assets. The logic of the reasoning is the following . Suppose that all the money in the community is in motion. Now, all payments will be done by two times smaller sums, but twice as often .To maintain the same turnover, half as large sum of money will be necessary. There will be "extra" money, which will lead to inflation. But this reasoning is wrong.

Even if all the money is in motion, each person at a time has a certain sum, which is a measure of his possibilities. Though this sum consists of "variable" money that constantly comes and goes. If the turnover rate increases, "variable" money needed to maintain the previous trade, will be smaller, but people will have "permanent" money at their disposal. However, the sum which, on average, each person has at any moment of time, will remain the same .Only in the first case, this amount consisted entirely of "variable" money, and the second – of "variable" and "permanent". Therefore, there will not be an inflation caused only by an increase of cash flow.

In this example, we are again faced with a situation where reason and consequence are confused. Rising inflation may be the cause of the growth rate of circulation of money, but not vice versa.

Chapter 6. Market equilibrium

Let us use the standard schedule of supply and demand for market analysis .The lines of supply and demand intersect at the point of equilibrium of the market.

Let us assume that the market is at point A. Point A is located to the left of the equilibrium point, and is below the demand and is above the supply curve .The lower is the point of the market below the demand curve, the more satisfied the  customers are . The higher is the  point above the market demand, the more satisfied are producers. Thus, the distance A1-A2 is proportional to the satisfaction which is received by the buyer and the manufacturer from the sale of one product or service, and is proportional to the volume of entropy received by a customer and a manufacturer. A product of the distance A1-A2 and  output is  proportional to the entropy volume, which the whole society receives.

In a competitive situation the market will move to a point of equilibrium, until it stops. But the point of equilibrium - the worst point of the market, because buyers and producers receive a minimum satisfaction in it. A slightly increased price -  and buyers will refuse to purchase. A slightly reduced price - and manufacturers  will refuse to manufacture the goods . At this point the market produces the  minimum volume of entropy.

The market produces the maximum volume of entropy when it moves to the point of equilibrium. Therefore, the more new markets are, the greater the entropy  is produced. But if to assume that due to improved competition a new market is instantaneously in the equilibrium position, it means that it produces a minimum volume of entropy.

On the one hand, the slower the market is moving to the point of equilibrium, the greater the entropy is produced per item. The more manufacturers are, the more products are sold and the greater entropy is, but the market comes into equilibrium faster. It is necessary to achieve the optimal balance between the speed of movement of the market to equilibrium and the volume of production.

However, all kinds of artificial restraint in output and  appearance of new producers have their disadvantages. It is more reasonable to create a developed system of information about  profitableness changes of different markets. Then the market, quickly moving to the point of equilibrium, whose  profitableness decreases rapidly, will be unattractive to business entities. The processes of growing competition and increased output will stop. One can say that the market will be less perfect, but more "wise”. And this is good, because perfect markets  produce the minimum amount of entropy.

Chapter 7. The concentration of entropy

Entropy is not only a universal measure of development, but also a measure of the competitiveness and survival. If there are some structures or communities struggling for the same resource, the winner is the one who is more powerful, has more entropy. Greater entropy can withstand more powerful enemies and natural elements. Therefore, people throughout history have learned to create different structures and the communities, because it is a way to concentrate and unite entropy.

Since we are more interested in economic processes, we shall consider the production company .From the standpoint of personnel working in it, the principle of investment takes place here too. Employees give away their freedom to get a lot of freedom in the form of salaries and free time .The company concentrates entropy, and this allows it to achieve greater success than a single individual can achieve, or other organizations with lower entropy.

Thus, in many respects, the success of the company, and the level of  its entropy depends on how much entropy will be given by each employee .If an employee performs his work not well: not accurately and  not according to instructions ,not occupied, always thinking about things not related to work, he  will give a small  amount of entropy. If he follows the instructions exactly, and all his thoughts and efforts are directed to perform his tasks, he is investing the company the maximum amount of freedom and his entropy. If all employees do the same, the company receives the maximum amount of entropy, which increases its capabilities .As a result, employees also receive a large volume of entropy.

 A modern man invests his freedom not only into the company, in which  he works, but also into the state, and other structures, formal and informal, that we call institutions, and  as a result to get a greater freedom.

Let's go back to the delusion that the savage had more freedom than modern humans, who are tied by numerous rules, regulations and laws. This is not the case. A savage was constantly forced to deal only with the search of food, and any experiments could result in the death of him or his family, so he had much less freedom and fewer possibilities, compared to a modern man who invests his freedom into a number of institutions, that enables him to obtain very large dividends in the form of additional possibilities.

Institute - a subsystem imposing certain restrictions on the actions of a person or an organization, but allows them to receive larger entropy  in comparison with the lost one.

It should also be added that the lack of concentration of capital often leads to higher unemployment. Companies are closed if they cannot reach a competitive level of entropy and the unemployment rate is increasing .A well-developed banking system is one of the main ways of concentrating entropy, and thus stimulating the activities of banks is an effective way of dealing with unemployment.

For the same reason, in the fight against unemployment, it is advisable not to spray investment for a variety of businesses, and concentrate funding for one, achieving the entropy due to the concentration of its competitiveness .In the future, competitive company will be able to develop independently and independently attract investment.

Sequential concentration of entropy in various companies, will eventually lead many of them to a competitive level. But if you spray the investment, each of these businesses will receive insufficient funding to be competitive, and these funds will simply be "eaten away".

Chapter 8. Entropy traps

So, to increase the entropy, it must first be reduced .However, if the level of entropy is minimal, then this is not possible. This condition will be called entropy trap. Its peculiarity is that to get out of it is impossible, relying on the natural course of events .Investors are looking for objects  to invest which will generate entropy, and thus they  do not invest those who have fallen in the trap and have extremely low freedom and almost no options. This is where  a state is needed .It can be said that overcoming such traps at different levels – is  one of the main objectives of the government. But it does not mean to help financially those who are in an entropy trap, people and businesses.

Several factors can facilitate the way out of such traps. The first - to lower the threshold of investment. The higher the subjective idea of the acceptability of the standard of life is, the higher the threshold at which people can invest is. In contrast, the more modest consumer appetite is, the less money is spent, the lower the threshold at which to start investing is. The volume of investment is increasing and the economy is growing.

Now stimulation of demand is considered to be the main task of the state  in the way out from the crisis. One more bought sausage, umbrella, hat ....All money should be included in the consumer turnover .As a result, the economy has not a single chance to break out this vicious circle, like a squirrel in a wheel. It is necessary to break this cycle, to pull out part of the entropy, some of the money from this turnover, which is predetermined, and in which there is some uncertainty. And you have to take a chance ... investment - always a risk, but without it there is no uncertainty, no uncertainty- no entropy, no freedom and no development. Money torn from the consumer race  is free money.

But with the deterioration of the economic situation, the threshold for investment decreases more slowly than the standard of living. And the investment is reduced with even  greater speed because trying to preserve the familiar comfort, people spend more on consumption than on investment .It takes time to  decline investment, with the lowering of requirements for the level of comfort.

For going out of entropy traps the government should not only form a plan  of "belt-tightening". Citizens need to see clearly that these measures lead to an increase in the free entropy. For ultimate transparency of this process,  as a variant, the forced expulsion of income into a special fund for the development may be proposed.

Usually, during the crisis, citizens interfere in governments process of  the  distribution of the budget  correctly- to invest in the most profitable enterprises. People insist on taking the money from the rich and give to those who need. But not in the case  when they will be promised not only to refund the money deducted to a development fund, but also to return with dividends that the fund will earn .In this case, people will not even mind if this fund finances only the most profitable projects.

The second factor that helps to get out of the trap of entropy - the deficit. If, say, the amount of some product is very small, the desire to get it increases. The greater the desire is, the greater the entropy returns to man, together with this product. A state or companies can attract the entropy of workers with very low cost for themselves. 


Although the general rule of exchange will be conserved .The employee can actually consider very profitable to work at full capacity all day for a bowl of rice, if the food deficit is so great .Similarly, a native may accept as a fair bargain selling of a not very necessary island for him for the desired glass beads.

Using cheap work industry can overcome the entropy trap. But such a situation is difficult to create on purpose, and it  can not last for a long time .Rather, it is a natural "anti-crisis protection", which is activated if the difference in the level of development of neighboring communities is becoming so great that allows "outsiders" to have a head start.

The third fact, helping to break out of the trap is to optimize the distribution of the released entropy. A maximum output would be in the case if the investment falls into the hands of those who can handle it well. The simplest matter is to  invest in the most successful businesses, in the most promising professionals, and private investors behave in such a way. But this is impossible in the case of the entropy trap, because private investors are reluctant to play the role of rescuers.

How can we distinguish those who will be able to dispose investments in the most effective way in the mass of people and organizations who have fallen into the trap of entropy? At the enterprise level, the state should not allow funding the whole enterprise but a particular project. It is important to legally forbid the use of money received to fund a project for saving unprofitable projects of the same company. And the control of this agreement should be strict. And then, investors will not be afraid to invest in small but successful projects, not fearing that these funds will provide the work of an entire enterprise.

At the level of individuals caught in the trap of entropy, the government should create an environment in which everyone can express themselves, even at the minimal opportunities. It may be some tests, tasks, cases, which are proposed to be solved  by those who wish, as well as small volunteer projects in which the quality of the examined  are studied. The developed infrastructure, subordinate to this goal will help companies and educational institutions to find the most promising employees and students.

If we are talking about the whole country which has fallen into the trap of entropy, the government among other things should create favorable conditions for attraction of entropy in the form of foreign investment, and to prevent the outflow of capital of its citizens and organizations abroad.

Chapter 9. Inequality

Imagine a society in which one citizen is very well off, and the remaining 10,000 are poor. Suppose that a wealthy man getting 2 million per year and 1,000 dollars., spends 1 million and 1 thousand and invests 1 million. At the same time each of the poorer compatriots spends just one thousand year. We can say that the part of the entropy that society is willing to invest – corresponds to  $1million. Now suppose that a rich man, imbued with socialist ideas leaves a thousand for himself, distributes two million and moves to the village. Now, each of the 10,000 citizens additionally receives $ 200 per year. If every one of them could invest $ 100 of this additional money, the big difference for economic development would not be. But in reality this does not happen. These extra $ 200 will be just spent. Because the sum of 1,200 dollars is still below the threshold of investing.

At the time of distribution of money, the total entropy of the society does not change, it will be just its redistribution. But for the growth of entropy it is necessary to invest it, but nobody will invest it. The development will stop, and if other countries continue to increase their entropy, then this " society of equality" will not be able to compete with them for resources and will begin to decline.

Again we face the dilemma: to spend or to collect for investment? It may seem a good argument that if everyone invests and buys almost nothing, then there will be nothing to invest in- the industry will stop. But in reality, the industries will have to develop better products, difficult to resist not to buy, and due to large investment, industries will have opportunities for such costly developments.

However, it is possible to assume that due to large investments there will be created such products that people can not but buy them. A consumption boom will start, it will reduce the comparative levels of investment and  will slow down the development of new products , the consumer demand will be smaller,  investment will increase, there will be new developments and new boom of consumerism. Perhaps this iterative process is the cause of Kondratieff long waves. But it is unlikely.

In general, it can be argued that income inequality promotes economic development. Of course, the wealthy can spend all the money, with no uncertainty, and without investing anything. Therefore, we formulate the following rule: the smaller the difference in the level of consumption is, and the greater difference in income between citizens of the same country is, the more the development of the economy is stimulated.

Chapter 10. Monetary measures

What happens to the economy when the government is taking some monetary measures? These measures either lead to redistribution of entropy, or to inadequate assessment of the available entropy. But more often, to both. Suppose that the government has resorted to printing money. Most often this is done in order to overcome any crisis. First, as a rule the most money is received by structures which need it most of all. That is, the structures that either do not add entropy, or do it in a minimal volume. Taking into account the subsequent inflation, it is hidden redistribution of entropy from those who know how to receive it, to those who can not.

But if you need to get out from under the collapse, who do you trust  your pick and other tools? Those who know how to use them and walk quite well, or those who have never used them and could barely walk? Of course, the money issue should be directed to the most successful projects and companies. No matter how paradoxical it may sound: to help the most successful has proved that they can multiply the investment. But in fact the opposite is reality- the state takes away the tools of those who would use them efficiently and gives them to those who can not. Can  you predict the effectiveness of such emissions?

They often  say about the impossibility of refusing to help unprofitable businesses because of the danger of rising unemployment and increasing social tensions. But then it is even more necessary to provide financial support to profitable businesses  so that they  can expand and create new jobs.

We have already mentioned inflation. The triumph of justice is due to it .Money is only an objective measure of the available entropy .But immediately after the issue of money, people who identify entropy with money will consider that they possess twice the entropy, and will act accordingly. During the circulation of money fraud  will be seen and compliance will  turn to normal, but this return to the real purchasing power of money can be very painful.

Once more let us consider methods to stimulate the economy in terms of Keynesian economic theory. It is believed that if,  for example, the government spends a lot of money on any order then it stimulates the economy, because the money starts to run around in circles, repeatedly stimulating economic processes. I've pointed out at the absurdity of such a representation. What is really going on?

The same transfer, the same transaction, may increase the entropy, and may reduce it. If the state places a large order only on the basis of stimulating the economy, then this order is unprofitable in itself. Thus the state itself reduces its entropy. In this case, GDP may grow for a short period of time, but we already know that this is not  the evidence of economic growth.

In economic analysis, you have to  turn from the transactions to more general concepts and parameters characterizing the development of an economic system, which is impossible without defining the essence of value. When we agree with this, the analysis of the chain of transactions is also not appropriate just as the thermodynamic analysis on the basis of alignments of chain of collisions for each individual atom is not appropriate.

The chain of payments to each other may lead both to progress and regress, depending on the overall processes  of the increase of entropy. Therefore it is more correct to analyze these generalized processes  as they are determining, and the endless chains of transactions only implement these processes.

Therefore, we can not try to analyze the effects of, say, the issue of money on the principle: Joe paid Tom, Tom paid Bill etc. It is enough to know that money does not affect the actual amount of entropy .Therefore, if you create such an illusion, it is not for a long time. After emission of money situation may develop in two scenarios:

1) The deceived society is in tranquility, but real entropy continues to fall. And when the illusion dissipates, the company is surprised to find itself trapped in entropy trap from which it is very difficult to get out by now.
2) The Government is investing "printed" money in the most profitable projects, and by the time the deception will have been revealed , the real entropy will increase. In fact, it would mean a redistribution of the entropy from the least efficient structures to more profitable. This movement contributes to the development of the economy, although it is extremely difficult to implement in practice.

Obviously I think the second way to use money emission is more appropriate.

Chapter 11. Economic crises

Now we can approach to the classification of economic crises.

The monetary crisis caused confusion of economic entities  regarding their savings and income level. The cause of these errors is usually some manipulation in the securities market and the foreign exchange markets. Citizens and organizations believe that they have much more entropy than in reality, but then the deception is revealed and it turns out that the real level of entropy is much lower.

A system crisis is linked to a state policy aimed at equal distribution of income, the suppression of freedom and uncertainty in the markets. If before implementing this policy entropy level was high, then it will remain so for a while, but the economy will cease to develop further. Therefore, as the entropy of neighboring states grows, the country will lose the fight for resources and will decline.

Shock crises are caused by environmental conditions, such as competition from other entities having a larger entropy, adverse changes in the environment or aggressive actions of other countries or specific groups of individuals.

Chapter 12. Economic ideology

The role of public opinion in governing a state is increasing. But to use public opinion in managing economic processes now, would be equal to economic suicide. This is not surprising because all the media assess economic processes and actions of politicians in terms of a uniform increase in GDP, and justice is assessed in terms of equal distribution of income.

Then public opinion affects the action of politicians, and in the end it leads to economic crises. As methods of influence in the economy were not so sophisticated and effective, misconceptions about the economic processes could not cause any great harm, but now these erroneous views can be fatal. Therefore the economic ideology is a very important activity of the state .The basis of this ideology can be the following:

The uneven distribution of income - the force pushing forward the whole of  the society.  People should love and appreciate their billionaires who are deprived of a normal life for the sake of prosperity of the whole society.

Promotion of uniform economic growth should be prohibited, as extremist. False ideals of this growth, are pushing the government on monetary measures that prevent the normal development of the economy. And when the "monetary fog" dissipates, the crowds are demanding the resignation of governments, because they inspired with: the economic downturn is not natural, and there must be guilty. And  as it is known the guilty are to be punished.

Everything develops in cycles. Although, of course, the cycles may overlap .But the main idea of growth and development – freedom and comfort  should be sacrificed first, so that to get it at a higher level, and then ... again donate. The need to periodically sacrifice freedom and comfort,  must be understood and accepted. Just as the idea of uncertainty should be adopted. To move uniformly and predictably can lead only to slaughter, whereas the free development involves trial and error, ups and downs. Freedom is uncertainty in itself.

The desire to change something in the life of every citizen, in the activities of each organization should be cultivated.

There may not be economic development without deficit and sense of dissatisfaction.

Society should be able to continuously monitor key economic processes. Citizens should be freely informed about change in the following parameters: the amount of money supply, inflation, hidden inflation, the profitability of enterprises and industries. And you should forget about the GDP.

And to sum it up: you have to do away with the dominant consumer ideology of gradual and smooth consumption of more and more products, without risk, uncertainty, without ups and downs, without freedom.

Enclosure

The entropy of the system and its components may vary. Thermodynamic entropy is a measure of the freedom of the individual atoms. Atoms tend to greatest freedom and thus their movements become less consistent and connected with each other. Therefore, from the viewpoint of the whole system they move chaotic and quite unpredictable. The atoms themselves  are at the same time happy, as they are free. However, the entropy of the whole system decreases and becomes zero at the moment of "thermal death." 

Entropy is the measure  of the development and the condition  of the development. Therefore, if the entropy of an object is zero, then it can not grow if it does not get the entropy from the outside. The object is in the entropy trap. Therefore, the zero entropy of the system is called heat death. 

However, nature invented the way to transfer entropy from the micro level to the macro level. The way to transfer entropy from individual atoms to the whole system is called Life. So a small movement of the atom of the nervous system can alter the movement and behavior of the mouse, for example.

But nature did not stop at this. The development of human society and its many institutions revealed that due to relations and restrictions imposed on the citizens ("atoms of society") it is also possible to increase the entropy  of the citizens themselves. 

The negative attitude toward entropy as a measure of chaos, has been developed from the observation of thermodynamic entropy, which describes the freedom of atoms in inorganic nature. There, indeed, the freedom of the atoms leads to the heat death of the system, and additional bonds decrease the entropy of atoms. But perhaps there is some universal law, stating that the increase in entropy at different levels is the main objective of  the development, which  forced to "invent" first Life, as a way to transfer entropy at the macro level, and then the complex human society, in which new relationships and constraints allow to increase entropy almost infinitely.