Supply&Demand

THE DEVELOPMENT OF THE LAW OF SUPPLY AND DEMAND

OR THE VOYAGE FROM DUALISTIC THOUGHT (THOUGHT ACCORDING TO NUMBER TWO) TO TRINOMINAL THOUGHT (THOUGHT ACCORDING TO NUMBER THREE)



Supply and demand is a similar conception with everybody. We are often known that to have supply is certainly to have demand, to have demand is to have supply or a increase in demand makes supply up and contrary…also frequently interpret the cause of increase price because supply is less than demand, price down because demand is less than supply. Even supply, demand concept pass over economic scope and enter other social field.

To deeply understand about supply, demand we need to return the history of economy theory to know who is the man had initiate the popularize law.

Actually economics is a still young science. Until 1795 in France appear the political economy professor title at pedagogical institute and economy professor title has a post at every law faculty in 1877.

A.Smith (1723-1790) – the father of political economy is interest in market and thinks invisible hand makes harmonious; he initiates the free exchange concept and division of labor as the basis of wealthy of nations.

D.Ricardo (1772-1823) is known as comparative cost theoretician had contributed for the law of supply and demand the access by demand.

T.R.Malthus (1778-1834) is one of rarely classical economics affirms that demand stimulate supply. This is a contribution for supply, demand from the man who well known as the shortage idea.

From A.Smith with free exchange concept to D.Ricardo who initiates the method of access by supply, T.R.Malthus who interest in demand is preconditions to J.C. Mill (1806-1873) propose the law of supply and demand in modern way.

“The relations between supply and demand…by mathematics language should using equation word. Need to know how supply, demand, quantity is supplied and quantity is demanded have to equal. If occurs an unequal, it is compensated by competitive and will occur up or dow the price.

If demand up, the price will up and the price will dow if supply up. The increasing and lowering will continue until supply equal demand; and the price of goods up in market is not anything but those goods in the market, to makes the demand large enough to swallow all quantity supplied or expected.

It is the law for all goods.”

The principles of political economy, Guillaumin, 1873.

The classic Anglo-Saxon imagine the world as mutual effects of individuals who is leaded by egoistic instinct also altruistic instinct toward social demand and the cooperative had initiate the unmoved supply and demand model. The limitation of unmoved model motivated new classic economics to seek the equilibrium between supplies, demand.

“In the equilibrium position of market: first, each exchange person get maximum benefit and then, the equally between supply. Demand of each kind of goods to who exchange”.

But L.Walras (1834-1910) has confirmed that general equilibrium is an ideal position and UN reality. Although Walras emphasized the selection of consumer, enter into relations with markets and price mechanism but he still thinks currency is an apron, not desired because itself but the goods under which it permitted get in exchange.

We can realize the differentiation in the way of thinking between classic and newly – classic economist here. If the classic economist is dualistic thought (thought according to number two) (true/false; good/evil…) in simple way then newly – classic economist proves that the relation between supply, demand is complex and in the middle of supply, demand appear the 3rd factor although still “The equilibrium on the blade” but it give the signal for the sunrise of trinomial thought – thought according to number three (the recognition between the limited known of true, false is the huge unknown object).

Lead by this way of thought J.M.Keynes (1833-1946) and other economics

Have efficiency exploited the unknown object between supply, demand.

The Great Depression in 1929 can not prove if use old economy theory helped concept of Keynes win.

“The basis concept of Keynes is works are tying with development. In order to get the sufficient job position it need to improve national product and to do it need add the demand, at the same time increase the budget deficit and distribute higher wage against with Puritanism opinion, ethically ascetic in economy, Keynes explains to pleasure principle. He said, by saving smaller, softer to saving, pay more, people in public benefit way because take a part to help the machine restart. He bring satisfy pleasure as economy policy replaces the sacrifice. In sum, Keynes is S.Freud in economy.”

The best of France, Seil, 1982.

So, Keynes is the man who upgrades the perfection of trinomial thought to make people confident in reform and institutions assure the harmonies social.

To Keynes, unemployed and inflation has closed link; work theory must have to new analyze about currency in which currency not only exchange instrument but also value tank and monetary standard (more or less inflexible) regulates loans and other commitments.

With the currency and business’ expect to take a part in cycle analyze, Keynes conclude that supply is not create the equal demand. It is quite contradiction with classic theory, to which J.B.Say’s rule define the equilibrium position of macro economic also general equilibrium model of Walras is reconsidered by General theory.

With that thought stream, modern economics have important discovery such as R.Hicks and K.J. Arrow with general economic equilibrium theory and welfare economic with A.Sen; B.Ohlin and J.E.Mead with theory of international trade and international capital movements; G.S.Becker for having extended the domain of microeconomic analysis to a wide rage of human behavior and interaction, including non market behavior; D.Kahneman for having integrated insights from psychological research into economic science…

So economics use other instruments from currency policies, welfare, and psychological behavior…to explain the correlation between supply and demand. It also makes conclusion that economic theory itself can not solve economic problem perfectly because a simple cause economic is a part of human society so economic science itself can’t explain completely the development of economic in privately and social in generally although they put into economic more and more factors relate to human and social.

In other side to W.Leontief with input-output model, supply and demand is to know in scope of goods, services although between supply, demand had many instruments toward more social characteristic.

Together with above analysis and in order to solve the development of society in which economic is a part we need to think supply, demand in a general integrated field consist of economic, culture, knowledge…that is expand the input-output concept over economic field and set it in limit of human society unit (nation or territory).

We can imagine the economics, philosophers, sociologist…create a “artificial person” – a virtual person to move and to develop together with human society in a territory or nation which burden carry on one’s shoulder is supply, demand for him and other artificial persons in global society.

We set the body (backbone) of the virtual person consist of 7 main asteomere:

- Natural conditions such as position, area, land, climate, natural resources, border with neighbor, territorial water…

- Human conditions: population, ages, sexual, ethnic, substance…

- Accumulation of materialize and immaterialize (inherit from the old generations) such as material, knowledge, culture…

- Custom of nation from the history as concept about good/bad, behavior, way of thinking, distribution and preserve wealth and property…

- Quantity and quality of education, training, health system

- Employment, unemployment, working conditions

- Welfare, social securities system.

Besides two factors have natural characteristic, five factors is productive from human it is visible and invisible inheritance.

A body needs to set up on two stable legs. The bigger body requires the longer, stable, more flexible leg. Because the important basis of it so market and democracy institutions selected as two leg of virtual person.

Market makes the liquidity of labor, property, financial and democracy is mechanics to protect market operates in good manner.

Two shoulder and hand is strong and flexible enough to carry on supply demand in balance.

- Shoulder and hand inclines to keep stable have main function to decide mode and mechanics of accumulation and distribution of wealth, material, income, and natural resources. So it express mainly in regulates, practical, rational inherit.

- Shoulder and hand inclines to develop have main function to decide concept, environment for selecting, and using mechanics of knowledge, culture, and spirit in general and it is selecting, using, and incentive mechanics to apply for talent in private. So it expresses mainly in create, trailblazer, speculative and imagine.

As we know, a country, a person can’t grow perfectly if his blood is practical only. Practical helps the development in rational, correspond with high benefit and unlogmatic manner but it isn’t enough. In order to break through develop the imagine has importance role. These are why practical and imagine are two shoulder carry on and adjust to equilibrium the burden of supply, demand.

To now we can ask by ourselves that economics think what instrument is shoulder pole?

The special characteristic of currency as value rule, exchange instrument, comparative, reserve, accumulative…make it play that hard and importance role. If shoulder pole (bank, finance system) isn’t conform to the artificial person such as to long (short) or not enough the flexible it will influence to carry on capacity.

On the country if supply, demand is unequilibrium it must adjust shoulder pole to set the new balance position.

Neck takes an importance part to assist head and also is a link point between head and body; with that function to keep faith and confidence in private, society also present the ethical, spirit and responsibility in society.

Head always keeps special role and head present for:

- Behavior culture with himself, others, social, nature, wealth and spirit…

- Alternative way of recognize, discover, solve the problem

We can imagine the difficult to keep the balance when body moves even he carry on the shoulder a burden of supply, demand. Keeping the balance of body requires to have an organ to recognize, maintain the balance in movement of body, avoid the confuse, undone. To get responsibility of vestibule organ that is the three divisions of powers: executive, legislative and judiciary.

The virtual person who carry on burden of supply, demand and keeping balance, moving among other persons which his supply (demand) not only servers himself but also another. So supply (demand) presents both active and passive manner, depend on and correlation with other partners.

With supply, demand is general field of products, services, culture, habit we can say when supply (demand) a product we not only supply (demand) a goods but also supply (demand) a culture, life style, consume way, a skill…introduce (adopt) knowledge, trade name…direction and indirection connection with that kind of goods, services.

Supply, demand of each person not only difference in quantity, value but also in quintile and becau supply, demand is cemented with human so the different of quantity, quintile is set by the performance level (the integrated power) of each virtual person.

This relation, so that explained the important of middle class – who make the main quantity, quality of supply, demand for society and that return is dynamic for the development of social.



Reference book:

Histoire despensees economiques

Les fondateurs – A. Geledan

Sirey Press – Paris 1988