The Systems Theory of Economics:
Price in a Mixed Economy
During the post-war era, the public sector took on rapidly expanding importance within the economy. The changing proportion of the public to the private sector has injected a structural component into price that conventional theory has ignored. For that theory price had but a single legitimate determinant- the balancing of supply and demand (see the previous tutorial section for an explanation of self-equilibrating theory).
The point of departure is the changing proportions of the public and private sectors: the output of the public sector is delivered according to non-market redistributional principles; but it is paid for by imposts upon the private sector. The stratum of this taxation in price- the social lien- answers to a logic of its own rather than that of the market.
It is also important to note that of the world's 100 largest economies, 51 are economies internal to corporations, and such economies do not function according to the dictates of market economies.
Only a brief outline is given of other economic subsystems below. For more detailed information, consult our Libraries Link, or, if you have any questions, send us an e-mail
The Social Lien
T = aggregate quantum of taxation as surrogate for the
size of the public sector
G = GNP
T/G = Structuraol Quotient
The causal circuit of the Social Lien subsystem appears as two positive half-loops - T to P and back again P to T. The Structural Quotient is really a surrogate for the relative magnitudes of the public sector to the entire economy.Also note that policy input makes its appearance. With that, the logic of the whole becomes that of a managed and not of a self-equilibrating economy.
The Social Revalorization Subsystem
Our pluralistic society is busily engaged in social reorderings. Legislation and institutional changes have removed the determination of many classes of earnings from the market rationale. This cannot but effect the price level in a way that is not reversible by market manipulation.
The Personal Services Subsystem
Another important subsystem is built around the ever larger role of personal services (education, social services, recreational activities, information, government, therapy, etc.) in our economy. The personal services quotient (PSQ) is defined as the proportion of personal services in the national output. The substantial growth of the ratio feeds a positive input into Price. If we were to set ourselves mere price stability (self-equilibration- see prior tutorial section) as a priority we should be depriving society of all choice concerning quality of life. After a certain point of economic development, it is personal services rather than commodity production that determine the quality of our existence.
Ecological and Resources Subsystem
Though a 'subsystem', the Ecological and Resources subsystem is an all-pervasive one. It has an undiputed primacy in the hierarchy of subsystems. Whatever the laws of society, they are subject to the laws of physics.
To view all of these subsystems in a single model click here. The rather large chart which opens reflects the ebb and flow of price in a mixed economy. In this model the only item we have not discussed is that an increase in aggregate demand (aD) leads to an increase in aggregate supply (aS); an increase in aS brings on a further increase in aD, and so forth.
It should be clear from the above that all of these subsystems cannot be reduced to a single monolithic system.
In order to function properly, an automobile is composed of many interdependent sections, not just one. So too our pluralistic economy has many subsystems, each of which is undergoing constant change. Moreover, only those subsystems which are obvious have been included above. Other subsystems, the notion of Entropy in economic dynamics, the important place policy directives play in a pluralistic economy- are beyond the scope of this tutorial. We would suggest our video, "Towards a Mixed Economy". See our Resources/Videos link.