Thursday 26 January 2012

Equilibrium

There are many ways to perceive balance of trade between countries. One perspective that can be useful is to consider the process of equilibrium. In biological systems the process of homeostasis, for example, denotes the continuous fine tuned adjustment around a desired point of equilibrium. This balance is achieved by constant monitoring and adjustment of the internal environment.



This process of finding balance is an useful perspective for considering economic action.

The fact is that value is based on perception on the individual level, and the aggregate of all such judgments in an area establishes the value of any one thing.

Balance of trade may be considered as the point at which the population groups in two clearly defined areas reach a common perception as to the value of all goods.

Note that I am not even bringing the monetary plane into this discussion; simply the aggregate value judgments of all players in the defined regions.

Once there is a general agreement on the value of any one good , i.e. when considering balance of trade between two zones, no party values the good more than the other, then flow of that good ceases, and value judgments are in sync.

It goes without saying that this perspective is not that relevant in our current economic paradigm. However once we enter a FreeGold paradigm, it is a useful view for understanding how balance of trade will occur.

Once agreement is reached on all possible goods flowing between zones, trade is balanced. It should be noted that such stasis is only a temporary condition, as the needs, wants and positions of the individuals involved continue to change, altering the point of equilibrium that needs to be reached, and is strived towards.



Peace

The Fool


15 comments:

  1. Interesting and thought provoking. Another analogy might be a PID control loop used in HVAC.

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  2. Hi NS

    Sure, that would be another analogy for the first part, from an engineering perspective.

    I'm glad you liked it. :)

    TF

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  3. Hi MF,
    nice to see a new post. What's about the human factor in time? I have the impression that you only see it through a technical lense, but neglect the human bias (one of the issues I always like to point out) ;)
    Let me show you: A man learnt from his farther to fish. He goes out to fish, to feed his family and hopefully can trade some extra fish to his neighbor, who's a farmer, that learnt his business as well from his farther.
    Now tell me: If he fishes more or less, or the farmer harvests more or less, do you thing that showing them your chart, will make them change their profession month by month to fits the equilibrium?

    Greets, AD

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    1. AD

      Err what are you talking about?

      Please don't put words in my mouth.

      I was talking about the value that things have to people. As in your fisherman might like to eat fish, or then again he may prefer a lamb-chop more.

      TF

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    2. okay, got your point (you got mine as well?).
      In that case I would like to ask you, what is the exact unit on the Y-axis, when fisher and farmer trading fish and wheat? See, you are writing that you dont want to bring it to the monetary plane, but without the monetary plane there will never be an unbalanced trade. Sure, we can say that the weight ratio of fish and wheat might vary, but still after the win-win-trade it is still balanced.
      I got an idea, how about that: An unbalance is only introducted once a party gives credit to the other party?
      Greets, AD

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    3. Hi AD

      I understand your point, though it has very little to do with this post.

      Consider it this way for the second graph. When the red and black lines intersect, there is a temporary equilibrium in the flow of any one good. When the red line is above the black line, the good is flowing one way and when it is below the black line the good is flowing the other way.

      At the intersections the value judgments about a good of two regions are synchronized. When above or below, one region or the other values the good more.

      Now extend that concept to make the graph represent all goods.

      These graphs were merely intended as conceptual aids, hence my lack of comment on them.

      TF

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    4. okay, got you.

      maybe it would have been easier to post the following link in the first place, so I would not have been so confused and posing dumb questions (okay okay my fault, but that's what we are here, to ask questions, yes?):
      http://en.wikipedia.org/wiki/Marginal_utility

      Greets, AD

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    5. AD

      I am sorry. I forget at times that others are not familiar with all the basic economic concepts I am. That is a flaw on my part.

      Peace

      TF

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    6. "without the monetary plane there will never be an unbalanced trade."

      Did he just say "Freefish runs bartertown"?

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    7. I suppose he did, though that is of course not true.

      I simply removed the monetary plane for consideration from this post as it simply confuses things...that is not to say it is not relevant. :P

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    8. dont put words in my mouth I didnt say.
      My thesis had been: "An unbalance is only introducted once a party gives credit to the other party"
      is this true yes or no? (no matter if this is what you where "aiming" to talk about or not). If you are claiming to be a PRO on economics, you should also be careful on how you formulate something.

      When we talk about "balances" (and with this great phrase it is _you_ who started your post :P) you would want to take a look at how the Hanse used to do trade: Everybody was happy after the trade, no unbalance, always settled before the ships left the habour.
      Greets, AD

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    9. Hmm. Extending credit is not a problem, doing so indefinitely and holding such credit as a reserve is. Credit is suppose to imply a period within which such credit will be repaid in real terms.

      I don't recall making the claim of being a pro in economics.

      I fact I claim to be just a fool. :P

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  4. http://www.youtube.com/watch?v=TrSWNvHD1R8&feature=related

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  5. I dunno that AD he sure does talk kinda funny, but I feel like I heard him before and his voice was different. Probably just at another forum somewhere. Perhaps he had a cold.

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