What do Keynes and Rafi Have In common ?

People disregard Old-School economic theories as an excuse to find something new to do. Let us face the facts; everyone wants to be indulged in doing something that has sprung up today rather than dig up 50 year old corpses. It is only natural and I am not in a position to judge people on that. If I were behind a desk in a cabinet surrounded by people doing the same thing day in and day out ; I would devise a tactic to do something else and get paid too.

To illustrate this let us see Keynesian economic model in its most primitive form by confining most complex variables to fit our nuances.

In economics or Econo-mathematics (as it has become; the line is very thin); a theory is first tested on very basic variables(easy situations) to test its feasibility. Some may call it “Empirical Comparative heuristics” (that’s what it was called in my 3 unit course in 3rd semester called “Principles of Economics”).

Let us think of a small system comprising of 3 farmers and a bank. The currency of this system is RA (yeah! my initials J ) . Now each farmer borrows 100 RA from the bank. So now we have 300 RAs floating in the system.

Now as the banker is not anyone’s Father-in-law; everyone must pay interest regularly to him. Let us fix it at 10 %.

Every farmer has a good bumper crop and have amassed enough capital to pay back their correspond loans.

The first farmer pays the 110 RA due to the bank and so does the second farmer. Now the plot thickens as the system we agreed on earlier had only 300 RAs floating and after the two have done their bit ; there is only 80 RAs left in the system. Whence it is impossible for the third farmer to pay the principle back ; let alone the interest. A paradox!!! A chicken egg situation ??

The answer is very simple; just add more funds to the floating amount. How? Let us set the story in motion again; after the interval………..

Now a fourth farmer enters the bank. He wants to sow a Rabi (winter) crop as opposed to the Kharif croppers who came by earlier. He too borrows 100 RAs with the same 10% interest.

Now our desperate farmer III can pay back the bank, but the IV farmer will be soon in III’s shoes and we will have to find a farmer V and the cycle goes on and on and on. Hence the only way an Keynesian economy’s wheels will move is by finding a way to increase the money base and number of borrowers.

At some point a similar system in another village with different currency lets say SC also pools in some money. Now the target system will be up and about ; for a while but it will run out out of gas soon and seek out investment from another system with a different currency. An exhange rate is set to soothe the transition from one currency to another depending on the prosperity of each system.Thus the system goes on branching out and out. Still world economy isn’t as simplistically addressable as I just did but nevertheless I did try to breeze through.

The fact remains that we still listen to Rafi-Lata duets when we are irritated by the over-amplified beats of the current music scene ; don’t we?

 

[Dhruv Bindhani]

People disregard Old-School economic theories as an excuse to find something new to do. Let us face the facts; everyone wants to be indulged in doing something that has sprung up today rather than dig up 50 year old corpses. It is only natural and I am not in a position to judge people on that. If I were behind a desk in a cabinet surrounded by people doing the same thing day in and day out ; I would devise a tactic to do something else and get paid too.

To illustrate this let us see Keynesian economic model in its most primitive form by confining most complex variables to fit our nuances.

In economics or Econo-mathematics (as it has become; the line is very thin); a theory is first tested on very basic variables(easy situations) to test its feasibility. Some may call it “Empirical Comparative heuristics” (that’s what it was called in my 3 unit course in 3rd semester called “Principles of Economics”).

Let us think of a small system comprising of 3 farmers and a bank. The currency of this system is RA (yeah! my initials J ) . Now each farmer borrows 100 RA from the bank. So now we have 300 RAs floating in the system.

Now as the banker is not anyone’s Father-in-law; everyone must pay interest regularly to him. Let us fix it at 10 %.

Every farmer has a good bumper crop and have amassed enough capital to pay back their correspond loans.

The first farmer pays the 110 RA due to the bank and so does the second farmer. Now the plot thickens as the system we agreed on earlier had only 300 RAs floating and after the two have done their bit ; there is only 80 RAs left in the system. Whence it is impossible for the third farmer to pay the principle back ; let alone the interest. A paradox!!! A chicken egg situation ??

The answer is very simple; just add more funds to the floating amount. How? Let us set the story in motion again; after the interval………..

Now a fourth farmer enters the bank. He wants to sow a Rabi (winter) crop as opposed to the Kharif croppers who came by earlier. He too borrows 100 RAs with the same 10% interest.

Now our desperate farmer III can pay back the bank, but the IV farmer will be soon in III’s shoes and we will have to find a farmer V and the cycle goes on and on and on. Hence the only way an Keynesian economy’s wheels will move is by finding a way to increase the money base and number of borrowers.

At some point a similar system in another village with different currency lets say SC also pools in some money. Now the target system will be up and about ; for a while but it will run out out of gas soon and seek out investment from another system with a different currency. An exhange rate is set to soothe the transition from one currency to another depending on the prosperity of each system.Thus the system goes on branching out and out. Still world economy isn’t as simplistically addressable as I just did but nevertheless I did try to breeze through.

The fact remains that we still listen to Rafi-Lata duets when we are irritated by the over-amplified beats of the current music scene ; don’t we?

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People disregard Old-School economic theories as an excuse to find something new to do. Let us face the facts; everyone wants to be indulged in doing something that has sprung up today rather than dig up 50 year old corpses. It is only natural and I am not in a position to judge people on that. If I were behind a desk in a cabinet surrounded by people doing the same thing day in and day out ; I would devise a tactic to do something else and get paid too.

To illustrate this let us see Keynesian economic model in its most primitive form by confining most complex variables to fit our nuances.

In economics or Econo-mathematics (as it has become; the line is very thin); a theory is first tested on very basic variables(easy situations) to test its feasibility. Some may call it “Empirical Comparative heuristics” (that’s what it was called in my 3 unit course in 3rd semester called “Principles of Economics”).

Let us think of a small system comprising of 3 farmers and a bank. The currency of this system is RA (yeah! my initials J ) . Now each farmer borrows 100 RA from the bank. So now we have 300 RAs floating in the system.

Now as the banker is not anyone’s Father-in-law; everyone must pay interest regularly to him. Let us fix it at 10 %.

Every farmer has a good bumper crop and have amassed enough capital to pay back their correspond loans.

The first farmer pays the 110 RA due to the bank and so does the second farmer. Now the plot thickens as the system we agreed on earlier had only 300 RAs floating and after the two have done their bit ; there is only 80 RAs left in the system. Whence it is impossible for the third farmer to pay the principle back ; let alone the interest. A paradox!!! A chicken egg situation ??

The answer is very simple; just add more funds to the floating amount. How? Let us set the story in motion again; after the interval………..

Now a fourth farmer enters the bank. He wants to sow a Rabi (winter) crop as opposed to the Kharif croppers who came by earlier. He too borrows 100 RAs with the same 10% interest.

Now our desperate farmer III can pay back the bank, but the IV farmer will be soon in III’s shoes and we will have to find a farmer V and the cycle goes on and on and on. Hence the only way an Keynesian economy’s wheels will move is by finding a way to increase the money base and number of borrowers.

At some point a similar system in another village with different currency lets say SC also pools in some money. Now the target system will be up and about ; for a while but it will run out out of gas soon and seek out investment from another system with a different currency. An exhange rate is set to soothe the transition from one currency to another depending on the prosperity of each system.Thus the system goes on branching out and out. Still world economy isn’t as simplistically addressable as I just did but nevertheless I did try to breeze through.

The fact remains that we still listen to Rafi-Lata duets when we are irritated by the over-amplified beats of the current music scene ; don’t we?

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