Three Policies Based On Non-Violable Laws Of Nature To Form A Permanently Stable Economy
Value is defined as the sum total of all the future benefits and losses to infinity in time. To derive the solution of value, which can be either the price or the rate of return on investment, we start from the equation of cash flow.
The equation of cash flow is a realistic accounting of cash flow, which should be acceptable by everyone:
The rigorous mathematical solution to value is to completely satisfy the equation of cash flow.
What we want to calculate is the price. In the above equation, there are two prices, one price and one resale price. Another similar equation can be written for the resale price. The equation for the resale price will introduce another resale price for the resale price. The number of similar cash flow equations of the exactly the same form extends to infinity in time, with an additional resale price introduced with each additional equation. The number of cash flow equation is always one less than the number of the price and the resale prices. The system of cash flow equations is non-deterministic, where the number of equation and the number of prices are not equal.
The additional equation can be obtained by making the assumption of economic stability at the end of the long chain of cash flow equations. The assumption of economic stability implies that the future capitalization rate, which is the net income divided by the price, is a constant. The net income is the annual gross income minus the vacancy and the annual operating expenses. Theoretically, and in practice, the end of the chain can be extended to as far as one wishes to make the assumption acceptable.
In general, the price at the end of the chain of cash flow equations needs to be determined by an iterative calculation by repeatedly assuming different trial prices and calculating the rate of return. The assumed price is the price when the calculated rate of return equals the assigned rate of return. All the inputs to the cash flow equation at the end of the chain are expressed as approximate time-invariant quantities, often either as a percentage of the price or of net income. Being approximately time-invariant, all the inputs are obtained from market comparisons. The price should not be obtained from market comparison because it can be calculated.
When the price at the end of the chain is known, the price prior to the end can be determined with known resale prices in a time reversed fashion.
When the price is given, such as in the stock market, the rate of return can be iterated with a double iterative loop, one for the price and one for the rate of return. The number of iterations for the calculation of the rate of return is roughly the square of the number of iterations for price determination.
Being mathematically rigorous, the solution of value is a non-violable law of nature and the basis of the three policies to establish a permanently stable economy:
1. Use the solution of value by all market participants,
2. Set the interest rate based on the logical order:
Rate of Return > Interest Rate > Inflation Rate
3. Supply the proper amount of money based on the Quantity Theory of
Money: Price x Quantity = Velocity of Circulation of Money x Money Supply (PQ = VM) where the distribution of money should be determined by the rate of return. In a capitalist economy, competition decreases the price. A capitalistic economy cannot survive without innovations, which, accordingly, often have the highest rates of return. One final important point to note is the relationship of the Money Supply M and inflation. Money supplied to increase the Price P without guidance by the rate of return will generally cause inflation. But, innovation can increase the Price P without necessarily causing inflation.
A Practical Application To The Financial Crisis Of 2008
The financial crisis is caused by the incorrect determined price by market participants and the monetary authorities. The cure is to:
1. Determine the correct price so that the price will stop falling at the correct price, not further, and no loan amount should be higher than the correct price.
2. The interest rate should be lowered to below the rate of return, but with the rate of return being negative, the interest rate should be lowered to the lowest possible point, approximately zero.
3. The negative interest can be achieved by bailout money or government contracts, whose priorities are ordered by their rate of return, not necessarily restricted to monetary returns. Social welfare is important because of its high non-monetary rate of return (non-monetary return of the same amount of money is higher for a poor person than a rich person).
The current policy of government finance through selling treasury bonds, in addition to taxation, is a self-imposed financial discipline on government spending and is not a non-violable law of nature. The policy will interfere with the money supply to the economy or the Quantity Theory of Money PQ=VM. Inflation is needed to counter deflation. Inflation can be created by increasing money supply. Money should be supplied as much as needed to create the inflation without being hampered by the concern of the national debt. The US dollar is already an IOU which is backed by the US economy. Selling Treasury bonds should only be for the purpose of reducing the money supply, not for raising funds. Otherwise, the government might interfere with the desired operation of the economy. If the federal government, not the local governments, needs money, it should just print it.
In a free economy constrained only by non-violable laws of nature, money supply should be allowed to increase to achieve the desired goal, such as funding projects with high rates of return to, mainly, increase employment. On the other hand, when there is too much work to be done, machines or robots should be manufactured to increase productivity through automation. Thus, the economy can be permanently stabilized by funding projects with high rate of return during underemployment and building robots or machine during over-employment.
It is important to stress innovation and automation, two real contributors to human progress. Money matters, but the real progress must come from knowledge, which is mainly advanced through innovations or new discoveries and the enhancement in automation. A permanent stable economic system must take into consideration improvement period, meaning innovations, and the construction period, meaning the commercialization.
After Boeing 777 was finished, the workers were fired from this project because the 777 is highly automated. Generally, automation or enhanced productivity, in general, decreases employment. Thus, the amount of money supply to maintain a desired degree of employment must not be influenced by progress in automation. It should be dictated by the equation, PQ=VM, mainly to avoid excessive inflation or deflation. The self-imposed discipline of the national debt accounting might interfere with the equation of PQ=VM and should be discarded, along with the sea shell, silver, gold standards, one-by-one in the past.
As a reality check, by the end of 2008 the US government has done (2) above in reducing the interest rate as low and as rapidly as possible, as recommended by Post-Science Institute. Soon the new Administration will have to face the task of determining the priorities of funding and finding the money to fund. It needs to consider (3) for determining the priority and finding the money. And (1) applying the solution of value is necessary for a permanent solution. ### Hugh Ching, Post-Science Institute, Updated 12-30-2008
From Regulation To Deregulation To Regulation By Non-Violable Laws Of Nature
What could be more important than solving the current financial crisis is changing the economic system in the aftermath of the crisis. Regulated central planning system lasts roughly forty years, and unregulated free market, eighty years, before a complete collapse.
Almost everyone agrees that more regulation is needed after the current crisis. The only remaining question is: "How To Regulate?"
Before going back to the old economic system of regulation by man-made laws, Post-Science Institute, which has predicted the S&L Crisis and the Subprime Woe with its solution of value, would like to propose a new economic system regulated by non-violable laws of nature, such as the solution of value and the quantity theory of value, which can be represented by the equation Price x Quantity = Velocity of Circulation of Money x Money Supply, which is strongly promoted by the late Milton Friedman. The new economic system can well be called the Post-Friedman Economics putting the development of economic systems in the proper historical and knowledge perspective.
The current financial crisis is caused by incorrect prices determined by uninformed market participants. Thus, the solution of value for determining the correct price is at the heart of the problem and the cure of most financial crises. The correct solution of value must be used by all market participants, including the government, in order to have a correct market price.
Being completely mathematically rigorous, the post-science solution of value is a non-violable law of nature in social science, as gravitation is a non-violable law of nature in science. After the verification of its mathematical rigor, the solution of value should be used by all market participants so that the market price will always be correct.
The difficulty of the popular acceptance of the solution value lies in its involvement of infinity. Value is defined as the sum total of benefits and losses to infinity in time. Infinity, according to the author of the book "Theory Of Value" Gerard Debreu, can only be handled with mathematics.
Most people, especially, politicians and their watchdogs, reporters, would prefer to avoid mathematics. However, reality is infinite in time and space. The financial crisis offers an opportunity for the world to advance from the current Age of Science to the Age of Post-Science, where exists relevant knowledge of non-violable laws of nature in social science, such as value, and of the fundamental requirement in life and computer science, namely, complete automation. ### Hugh Ching, Post-Science Institute, Updated 1/2/2009
Hugh Ching
Post-Science Institute
_____________________________________________________________________________________
JOB OBJECTIVE Teaching and/or Research in Post-Science
EDUCATION SPECIALIZATION
B.S. (Electrical Engineering) Massachusetts Institute of Technology E-M Field Theory
M.S. (Nuclear Engineering) Massachusetts Institute of Technology Fusion Economics
Sc.D. (Nuclear Engineering) Massachusetts Institute of Technology Plasma Kinetic Theory
Post-Doctoral Research Courant Institute of Mathematical Sciences Monetary Economics
CAREER CHRONOLOGY
2005 - Present Co-authoring with Dr. T. L. Kunii and Prof. C. V. Ramamoorthy on the book Knowledge
at Complete Automation Laboratory (CAL): http://www.lulu.com/ching
1990 - Present President and Founder, Post-Science Institute, dealing with knowledge beyond science
Permanent Software: Complete Automated Software (Patent No. 5,485,601)
Infinite Spreadsheet: Solution to Price (Patent No. 6,078,901 Issued June 20, 2000)
Robot Touch: Explanation of touch and ball control using the concept of jumpulse
(Jumpulse, a word coined by Ta-You Wu, is a sudden change of force, as impulse is
a sudden change of momentum); no one detected this problem for three-hundred-years !
President and Founder, Infinite Spreadsheet Institute and Permanent Numbers, a
$Trillion Business Plan based on Permanent Software, charging $1.00 for each number
President and Founder, World-Wide Institute Of Valuation; Computer Newspaper
1987 - 1989 Columnist, "Chinese Student Voice"; Director/ Producer, TV show "The Art of Eating"
Director of Ming's Villa in Palo Alto, California (Rescued it from near bankruptcy)
Prior to 1987 Partner, Homefinders Bulletin - First commercially successful Computer Newspaper
reached Inc. 500 (responsible for the bankruptcy of 30 years old local newspaper
Berkeley Gazette by taking away its classified ad section with a sliding pricing system)
Contractor, Atomic Energy Commission; Visiting Associate Professor, National Tsing
Hua University, ROC; Scientist, Courant Institute of Mathematical Sciences, NYU
Research and Teaching Assistant, Massachusetts Institute of Technology
PROFESSIONAL MEMBERSHIP
Who's Who (Asian Americans, American Inventors, etc.); Investment Teacher (self-supported all research)
PUBLICATIONS
1. Generalized Fluid Description: Df/Dt = Sources, where f is a function of all the spatial derivatives of time from the first (distance) to infinity. It provides a theoretical foundation for plasma physics to replace the correct but not usable Plasma Kinetic Theory and the usable but incorrect Magneto-Fluid Dynamics.
2. Table Tennis, Scientific Analysis - Book explaining ball control, the secret of consistency in sports, (The author is a two-times table-tennis champion at MIT). Robot fingers will bounce off a surface when they try to grasp an object (much like the ball bounces off a racket). Thus, jumpulse is the solution to robot grasping and walking, airplane landing, and bounceless shock absorbers. Force is defined by Newton as a push or pull, but when two objects come into contact, they generally bounce off each other
3. "Quantitative Supply And Demand Model Based On Infinite Spreadsheet" (Pat. No. 6,078,901) - Patented software for price prediction; predicted the US Savings and Loan Crisis
4. "Completely Automated And Self-generating Software System" - Patent (Pat. No. 5,485,601) putting computer and life sciences on a same foundation; expanding job market by lowering technical barriers; establishment of Permanent Software standards to replace all the current temporary software standards
5. Knowledge - Book co-authored with Dr. T. L. Kunii and Dr. C. V. Ramamoorthy based on the solutions of touch, value and complete automation, 2006.
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