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## Über dieses Buch

This book deals with factors affecting economic growth in knowledge-based societies. It is shown that the interaction between material and nonmaterial values is the ultimate source of all economic growth including business cycles. The model developed predicts the quantitative facts concerning the business cycles better than the conventional real-cycle models. It also produces, besides the balanced-growth path, another growth path whose existence is verified by empirical facts. The results give strong evidence of the economic relevance of nonmaterial values. They also prompt a new vision of the stochastic elements in the business cycles. Nonmaterial values are analysed, and their interaction with economic growth is also illustrated in terms of an entropy formalism of historical analysis.

## Inhaltsverzeichnis

### I. Knowledge as the Basic Nonmaterial Value of the Supply Side

Abstract
In economics human capital is defined as a factor of production. It stands for the economically profitable average knowledge and skills of labour force in society. But it is next to impossible to tell which part, for instance, of scientific knowledge will be economically profitable in future. Therefore we shall study in Part I a generalized concept of human capital as a nonmaterial value of the supply side.
Arvid Aulin

### II. Nonmaterial Values of the Demand Side

Abstract
The Kuhn-Feyerabend school of philosophers refused to see any useful difference between subjective and objective knowledge. But there is a difference, and this is elementary.
Arvid Aulin

### III. A Necessary Extension of Economics

Abstract
A leisure term with an unbounded value function, when added to utility in the Lucas (1988) ‘mechanics of economic development’, expands enormously the range of data covered by the theory. To explain this we have to ask two questions. First: why leisure would be so much desired? Perhaps because leisure is one’s own time and such a leisure term means an unbounded value of individual freedom. But why leisure is economically productive, as implied by the results obtained in this study? Perhaps because cognitive innovations often occur during the time which in economics is registered as leisure? Then an unbounded leisure term would also make room for an unbounded creation of knowledge, as distinguished from the mere transmission of knowledge in education and training. But the leisure term is also the ‘hole’ through which the nonmaterial values of the demand side may affect economics.
Arvid Aulin

### IV. The Mathematical Tools

Abstract
In the present Part the classical theory of mathematical dynamics underlying dynamic economics will be applied paying special attention to the parameter conditions of existence of solutions in the applications of dynamics to economic theory. This has not been always done in economic applications, which suggests that a detailled introduction to the mathematical tools as applied here may be useful. It will be given in the present Chapter IV, in two Sections the first of which concerns the basic Hamilton-Jacobi formalism of classical dynamics.
Arvid Aulin

### V. The Lucasian Mechanics of Economic Development and its Extension to Nonmaterial Values

Abstract
The Lucas growth theory (Lucas, 1988) has a particular structure that reflects the idea of rational expectations. First there is a situation, in which the households and firms react to what is generally expected to be common knowledge, i.e. a sort of average level of human capital in society. In the theory this level is exogeneously given, just as the exogeneous factor of technological progress in the Solow model. The fundamental equations of the theory are constructed in this situation, which will be here called the “reaction of the market to common knowledge”. Then market clearing creates a second situation, in which the exogeneously given and the endogeneously produced average levels of human capital coincide. The solution of the fundamental equations has to take place in the second phase, to be called here the “market clearing”.
Arvid Aulin

Without Abstract
Arvid Aulin

Without Abstract
Arvid Aulin

### VIII. The Growth Effects of Nonmaterial Values and the Trade-Off between Growth and Stability

Abstract
The output (Y) P of an economy on a basic growth path P, whether in Growth Type 1 or 2, can be expressed in terms of the average human capital (h) P of population on that growth path:
$${(Y)_P} = {A^{1/{{\left( {1 - \beta } \right)}_b} - \beta /{{\left( {1 - \beta } \right)}_b} - \beta )}}\left( {\psi /k} \right)\left( h \right)_P^{\left( {1 - \beta + \kappa } \right)/\left( {1 - \beta } \right)}.$$
(18.1)
Here the formulae (12.12), (12.17) and (12.26) were used, together with the equation w = b holding good on the basic growth paths.
Arvid Aulin

### IX. An Alternative Vision of the Stochastic Element in the Business Cycles

Abstract
Stochastic shocks do not essentially influence the long-term economic development. This is an accomplished fact in current growth theories (of Solow and Lucas, for instance). But ever since an important paper of the Russian mathematician Eugen Slutsky from the year 1927 was translated and published in English in a completed form (Slutsky, 1937), the economists have been fascinated by the idea that the business cycles may be purely stochastic processes. This would surely account for the ragged outlook of most economic time series. What Slutsky showed, however, was something more, viz. that random series are capable of forming cyclic phenomena. In fact this follows already from the symmetry of the Gauss curve around the mean of the series, and the effect can be made more visible by summations of certain sequences in a random series.
Arvid Aulin

### X. Human Actor

Abstract
We shall consider human action as an interaction between a subject, i.e. a conscious actor, and an object, i.e. some part of the outer world at which the act of the actor is directed. The actor may be a human individual or a collective of any number of human individuals. A collective actor may be even the total population of a human society, or even the whole mankind at a given point of time.
Arvid Aulin

### XI. Cybernetic Entropy Laws of Actor-Systems

Abstract
Let us consider two actor systems called the Disturber D and the Regulator R, defined by the respectivee causal recursions φ D and ψ R :
$${\phi _D}:X \otimes D \to X,$$
(24.1)
$${\psi _R}:Y \otimes R \to Y.$$
(24.2)
Here X and Y are the state-spaces of the respective systems, and D and R are the sets of possible values of their respective parameters d and r. The parameters d and r are real vectors in the respective parameter spaces V d and V r , whose volume elements we shall denote by dV(d) and dV(r), respectively.
Arvid Aulin

### XII. The Entropy Laws of Individual Freedom

Abstract
Common sense, historical experience and anthropological evidence suggest that the level of individual freedom tends to be different in different cultural surroundings. In ancient Temple States of Egypt, Babylonia and Assuria of the Middle East, as well as in the states of the Azteks and Inkas on the American continent, strong social and religious hierarchy limited greatly the freedom of individual human beings. Compared with those ancient states, modern Western democracies quite obviously permit larger individual freedom.
Arvid Aulin

### XIII. World History Revisited in View of the Entropy Laws

Abstract
The Western Europe developed minor local societies of economic growth toward the end of 11th century, starting in the cities of the Mediterranean area — and possibly already in the new feudal states a few hundreds of years earlier. The exact date cannot be given, not even at an accuracy of a century, since reliable numbers are lacking. But since the 11th century there are rather reliable numbers based on the yield ratios calculated from tax and other statistics. Some numbers exist in fact since 810 AD1. From the very beginning a difference appears between the East and the West. The yield ratios in Russia remained at a low constant level until the end of 18th century, while those in the West steadily increased.
Arvid Aulin

### Backmatter

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