Tuesday, July 24, 2012

Production Possibilities Frontier (PPF) Pond Ripple Analogy.

Go to the economic literature and see if you can find more than a quadrant of a two dimensional figure to describe the production possibilities frontier.

Where does the production possibilities frontier come from and how is it related to the economy as a whole? As it is used in economics it is basically a much simplified 'either/or' exposition. It is a ceteris paribus construct that demonstrates how the limits within the economy constrains the choices to more of one at the expense of less of the other.

This is the status of contemporary economics and yet when I mention that there is a new economic theory out there (that I call the divine economy theory) these same economists chuckle under their breath or in one way or another do not deign to regard it as possible (to even the slightest degree).

Well maybe when they are educated about where the production possibilities frontier comes from (not historically in the literature but in the broad picture of the economy) then at least some of them will be astounded at the magnitude of the different conceptual knowledge gained from the divine economy theory.

This is where the pond ripple analogy comes in. Now go back to the two-dimensional quadrant and imagine it as a part of the pond ripples where the intersection of the x and y axes is the point where the pebble entered the water. And imagine that you take a snapshot in time where the arc goes from one point on the y axis to a point on the x axis and voila you have what is considered the 'state of the art' production possibilities frontier!

What you do not have in your snapshot are the other three quadrants which would combine to make up the four quadrants of a circle. Necessarily absent also then is the concept that defines what that circle is.

And what you also do not have are the other dimensions, which in the divine economy theory include the third, the fourth, and the fifth dimension. In the divine economy theory the fifth dimension is time and so instead of a snapshot it would be a video!

Just like Roger Garrison shows in his work - that the production possibilities frontier can either expand in an unhampered economy or shrink if there is interventionism - the divine economy theory uses the production possibilities frontier to show the favorable or not-so-favorable consequences of both laissez-faire and interventionism, respectively.

Economists that ignore - out of ignorance or pride or prejudice - the divine economy theory are becoming obsolete as evidenced by the production possibilities frontier pond ripple analogy! I suggest investigating the divine economy theory. What is there to be afraid of?

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