Beginnings of a Comprehensive Economic Theory: Economic Crisis, Especially in Capitalism

What causes an economic crisis? I'm not certain, but, given what I've investigated so far, I'm inclined to think it is an imbalance in the three struggles. Indeed, imbalance in one of the struggles leads to imbalance in at least one other, if not both. If the buyer start winning the struggle between buyer and seller, profits fall, which companies turn into laying off workers allowing them to lower wages. One company dominating a market leads to high prices and low wages, since they need hire less people to produce the same amount thanks to economics of scale, though profits soar. Bosses starting to crush workers leads to lower wages, which means that the companies can't sell as much. Sellers winning out on prices more, but causes buyers to stop buying, so the sellers begin losing, and the buyers start winning. Workers winning out over bosses causes bosses to rise prices to compensate for high wages and fire a lot of workers, which causes them to dominate the seller-buyer struggle.

Notice how in all of those, the workers and buyers are hurt far more than the companies which employ them and sell to them.

A good example of a worker crisis is the stagflation in the 70s. Unions gained a lot of power. In response, bosses raised prices and culled workers. This was termed stagflation, and is exactly what should happen when unions gain power.

Our current recession is a boss crisis caused by a buyer crisis, which expanded with the boss crisis, caused by a seller crisis, otherwise known as a clusterfuck. The housing bubble was caused by sellers lying to buyers to convince them to buy. As that kept going and going, they made a ton of money. However, the lie got exposed, and buyers stopped wanting to buy. This caused the companies to quickly lose a lot of money. This meant they started firing workers to lower wages. As they did so, people stopped buying elsewhere, so other markets were forced to fire workers to lower wages and earn less.

Beginnings of a Comprehensive Economic Theory: Worker-Boss Struggle

I'd like to focus on each of the three struggles individually. While each is broadly the same, the devil is in the details, so the details it is.

Now, before we begin, there needs to be some way to measure this struggle for us to even hope to study it. Luckily, there are a couple, depending on certain factors. If a currency is backed by something, like, say, gold, then wages are the best measure. When wages are high, the workers have a lot of power. When wages are low, the bosses have a lot of power. If a currency is fiat, then inflation is a better measure. When wages rise, bosses need to raise prices, if they want to continue to make money. In reality, inflation under a fiat currency is measuring wages, but it is aggregate so it's a better method. (This is the part I'm most unsure about and the part that will go through many revisions in the future. Any way to improve this part any of you can think of can go in the comments. Thank you.)

In addition, there are many ways for one side to have power over the other. One basic thing is unemployment. When unemployment is high, the bosses have power since they can always find new workers, so they can fire workers with impunity. The opposite is true of low unemployment.

Of course, not everything can work like unemployment, and will only grant one side power. For example, unions can only really grant power to workers.

On the side of the bosses, they have similar organizing. The difference is theirs is institutionalized. The organizational structure of the company itself is the organization that empowers the bosses.

In addition, regardless of how they feel about each other outside of this struggle, all bosses are allies in this struggle and all workers are allies in this struggle. Workers who gain power encourage those who don't to unionize and fight for more power, just because they can see the other workers winning, which is inspiring.

That's why companies don't encourage workers of the companies they compete with to unionize. This is also why unions often strike when other unions strike in a show of solidarity and bosses share troublemakers with each other creating blacklists.

This creates inefficiency in a number of ways. First and foremost is strikes. That's time, energy, and resources being put into the struggle rather than elsewhere. Second is systemic unemployment. That's labor that could go somewhere productive, but isn't going anywhere. Third is the resources bosses use to regulate and control the workers.

Beginnings of a Comprehensive Economic Theory: Struggle as Fundamental

In my last post on building an economic theory, I came to the conclusion that the interactions of people are fundamental to the economy, not individuals themselves. However, are all interactions economic? Of course not. Economics, as a whole, tends to deal with a specific set of actions by people: First, production of goods and services. Second, hiring of workers. Third, the selling of these goods and services. Fourth, the purchase of goods and services. Fifth, the competition between different businesses.

These five actions boil down to three interactions. First, the interaction between the worker and the boss. Second, the interaction between the producer and the consumer. Third, the interaction between competing businesses. These all share one common characteristic: They are a struggle. In the first, the worker struggles for higher pay and less work while the boss struggles for lower pay and more production. In the second, the producer struggles to get more consumers to by more of their product for a higher price while the consumer struggles to buy what he/she will actually want for a lower price. In the third, both businesses struggle for more customers buying more of their stuff. Thus, it wouldn't be inaccurate to say that economics is the study of the struggles in production and distribution.

These three struggles are what are fundamental to the economy and, thus, must be fundamental to any analysis of the economy. All three of them have resources funnelled into them, be it through strikes, union dues, hiring pinkertons, creating anti-union propaganda, marketing to customers, shopping around, or negative ad campaigns. All of them take up time, labor, and resources that could be put into other things, thus all three of the struggles are inefficiencies.

The expression of the struggles can be found in three places: wages, prices, and relative prices among competitors. They show who is "winning" each of the struggles and by how much.

Beginnings of a Comprehensive Economic Theory: The Building Blocks of the Economy

What is the fundamental unit of the economy? Orthodox economic theory, in addition to many heterodox economic theories, accept the premise of classical and neo-classical economics in this aspect: the rational individual is the fundamental unit of the economy. But is it?

If it is, then there is no fundamental units of the economy. Why is that? Because people aren't rational, as a whole, especially not in any economic sense, which often includes pursuing their personal self-interest. People are influenced too much by morals, lack of information, friendship, hate, identity, and social prestige. People will cater to the whims of others rather than their self-interest, and often do so in irrational ways, such as praying for a hurt child instead of taking that child to the hospital or assassinating a famous musician to keep him "pure".

However, there are more problems with this concept of the rational individual being the fundamental building block of the economy. I mean, an individual who goes out into the wild and hunts for food in unclaimed territory is not a part of the economy. What is different about that person from a participant in the economy? Interactions with others.

Does that mean we should refine the fundamental of the economy to irrational individuals who interacts with others? No. No one interacts with others all the time, and it's only when they are interacting with others that they are participating in the economy. The fundamental unit of the economy should be the interactions with others themselves.

In my next post on building a comprehensive economic theory, I'll discuss what are the most important interactions with others and how to classify these interactions, especially the important ones.