Conservation of Wealth (part 1)

NOTICE

• I do not intend to deny or criticize current study disciplines
• NEVER TRUST THE FOLLOWING

Conservation of Wealth and Equilibrium

• Any economics have proper limit of explanation
• In equilibrium theories, the limit is wealth-conservative system, or closed economy
• Like as energy conservative systems in physics, we isolate the region of economic interest from rest of the world, and keep the total amount of wealth invariant within (before-after) the observed period
• But wealth is not equivalent to physical energy: What we call economics is, always models of (usually) market-part of (regions of) whole global economy, which is a part of earth system continuously in (physically) non-equilibrium steady state with heat and ray energy from the sun
• Just as in thermodynamics, there is two levels of isolation: closed but outside information (exogenous variables) can affect, and completely isolated
• In other words: partial equilibrium vs. general equilibrium
• For present purpose, we regard money as synonym for wealth (detailed argument is later)
• Game: zero-sum (Note: non zero-sum N-player game can be rewritten as limited form of zero-sum N+1 player game)
• Microeconomics: Paleto efficiency (no better off)
• Finance: self-financing (always bet your own money only)
• Macroeconomics: autarchy (no foreign trade)
• International: limited number of (usually two) nations (often endogenous exchange rate, and >2 nations could be unsolvable)
• For financial models, you may lose or gain your assets, so apparently it looks non-conservative, but for every contract you did, the counterpart gain when you lose, lose when you gain. To summerize, what you lose(gain) is always what the rest of the market gain(lose)
• For macroeconomic models, we must distinguish "flow" from "stock". In any dynamic macroeconomic model we state national wealth (stock) as integrated income (flow) but wealth have arbitrariness with initial amount of wealth, or integration constant

TODO

• define and explain open economy and its stability
• define and explain "equilibrium" with growth or other endogenous changes
• define and explain money and tangible asset