Dissertation > Economic > Economics > Basic problems of economics

The Harmony Cost

Author XieMin
Tutor WuZhaoYun
School Jiangxi University of Finance
Course Industrial Economics
Keywords interpersonal interest relative integration economic freedom economic efficiency
Type PhD thesis
Year 2005
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1. The choosing of theoretical breakthrough pointThe theoretical breakthrough point of the research lies in the argument that the price system never completely distributes economic interests to individuals in the economic system. In fact, the research is directly conducted in the core of economic theory-the price theory, which enabled us to take advantage of conveniently making use of the abundant theoretical and profound materials form economics. And this breakthrough point is based on the fact that organizations do exist as a "solid fact "in economic systems, which lays a firm empirical foundation for the research.On choosing the breakthrough points of the theory and practice, the research proceeded to confront the fundamental conflict-conflict between freedom and efficiency in human’s reasoning ability behind the economic behaviors, which has never been solved as ultimate explanation of facts. In fact, the conflict between freedom and efficiency can’t be solved, thus making the research based on the theme harmony will never be gone beyond. Furthermore, as the criticizing and perfecting approaches have been ruled out along with the process of theory construction, the possibility of the extension of the theory also guaranteed.Between the solid fact and the insurmountable conflict, the theme of economic harmony is chosen as the conjunction in the research. There are a lot of extensive realistic meanings in the theme of harmony, and the most typical meaning under today’s market mechanism exists in the rational foundation of internal management of the enterprise organization and of government regulation in the macroeconomic system. The conflict between the management and administration and the market mechanism consists in the fact that the former regarded forcing as its foundation, while the latter took freedom as its foundation. Therefore, the combination of forcing and freedom in the market practice demands for an effective rational explanation.2. Theories and HypothesisUsually, when a research being taken, one or more assumptions shoule be conducted before a theory can be arrived at. This can be attributed to the following two possible reasons: for one thing, in the research it is necessary to do the assumption on human’s mind, such as desire, which can not be observed by facts. Hereby the assumption should be: The people commonly desire for a harmonious state by nature.Another reason for a hypothesis is because there is some unobservable relationship behind the observable facts, when it becomes the logical necessity to verify the relationship between facts. Hereby the assumption should be: as the embodiment of the existence of the economic organizations, the division generally promotes the efficiency of wealth production. It is also the benefit foundation why people have been yearning for harmony.3. Categories of the concepts mentionedSome concepts have been used to guarantee the exploration of the harmony theme in the research. All the concepts can be classified into the following two catalogues in general: core concepts and non-core concepts.All the core concepts have been defined explicitly in the dissertation. Some of them are defined intensively which the later use of the definitions were based on. The others are defined progressively, and meanwhile their meanings would be deepened with the development of the dissertation. The non-core concepts usually are not explicitly defined, and usually only the common meaning used when the concepts appear. When they appear in different places in the dissertation, the suitable one of the many meanings will be chosen. Considerations are paid to ensure that there are no conflicts between the meanings of the same concept in the whole context.The concept of harmony is the focus and the most essential concept in this dissertation, whose meaning is launched progressively. And the development of the dissertation should also be the exploring course to the meaning of harmony. The concept of harmony actually contained the following respects: firstly, harmony in daily sense; secondly, harmony in different academic spheres such as sociology, management, economics, etc.; thirdly, harmony expressed by and observed in human’s interests and behaviors; fourthly, harmony of interests and behaviors which can be explained in human’s reasoning ability when confronting organization as limited integration; and the last one, harmony as a balance between freedom and efficiency in human’s reason.The concept of cost is another core concept in this dissertation, and it is developed in the following two levels. The first level is named as cost in universal, which refers to the interests paid by individual for the expected interests increasing. The key elements of cost in universal are as follows: the economic participants’ payment for the expected growth of interests in the future; the time from present to future; the reasoning ability connecting the participants’ interests and behavior. The second level is named as "harmony cost" that is empirically observed and theoretically defined as interpersonal interests, which is paid for the individual interests increase or improvement by rational participants. Hereby the interpersonal medium is economic organization, i.e., the existence of organization observed in the respect of interests.Methodologically, the concept of harmony cost adds interpersonal interests and its medium the economic organizations to the concept of cost in universe, meanwhile, the thought of limited integration also merges into the concept of cost in universal, which makes the thought of the unlimited integration find its way to transform to the thought of limited integration, hereby the organization not only became an empirically attainable goal through the individual rational choice, but also an observable interests entity that may exist in the economic theories.Then, the harmony can be observed through the existence of interpersonal interests, and the harmony cost wins its supporting premises since individuals would like to pay for the harmony cost due to the harmony affection. It is a demonstration in a circle, by the circulation the theme gained the possibility of a deepening development. At the same time, the necessity of the circulation also lies in the fact that the different concepts orientate to the different demonstration logic of the theory.Freedom, efficiency and integration are another series of key concepts in the research and all of the three are intensively developed in a course of a step by step demonstration process. There were 8 steps of meanings in the term of freedom: Firstly, it refers to the absolute freedom of an independent individual; secondly, the human’s freedom in the interdependent society; thirdly, the freedom observed in the view of interests and behavior in the economic system; fourthly, the economic freedom realized under the competitive price system; fifthly, the freedom with the meaning of ethics taking rent as its basis; sixthly, the human’s freedom observed in terms of interpersonal interests in the economic organizations; seventhly, the freedom in an integral efficiency; eighthly, the ontological freedom meaning relating to efficiency.The developing process of the concept "efficiency" includes 6 stages. Firstly, the efficiency is considered as the ratio of input and output in production; secondly, the efficiency regarded as the individual income in the interpersonal system; thirdly, the efficiency created by the collective cooperation or exchang; fourthly, the efficiency in the economic organization regarded as a limited integration; fifthly, the fluctuations of efficiency in a limited integration; sixthly, the ontological efficiency relating to freedom.The concept of integration also includes 6 aspects. Firstly, it refers to a transformation from the social integration covering the all-inclusive emperical facts to the economic integration observed by means of interests and behavior ; secondly, the concept of integration under the view of unlimited mentality; thirdly, the return from the absolute integration to the truth of empirical facts under the view of limited mentality-the limited integration; fourthly, the observation through the limited integration in the economic organizations; fifthly, the harmony cost as a theoretical demonstration of limited integration based on the empirical facts-organizations; sixthly, the deepening of the harmony cost-the harmony cost in static and dynamic state.4. The structure of the dissertationThere are six chapters in the dissertation. Chapter 1 is an introduction on the basic research approaches, especially the distinguishing of the empirical facts and theoretical facts, the absolute (unlimited) integration and relative (limited) integration, lays down solid foundations for the dissertation. In Chapter 2 the interpersonal harmony has been observed, by transforming harmony into the interpersonal interests and behavior, the human’s social interdependence is dealt as the co-ordination of interests and behavior in the process of wealth creation by the multi-element collective production. As a result, the concept of harmony in human’s mind could be transformed into the analyzable theoretical concept. In Chapter 3 the phenomenon that the economic interests distribution mechanism-pricing system fails to completely distribute economic interests to individuals make the organization able to be observed in terms of interpersonal interests, and be theoretically discussed in the framework of economics. Furthermore, the power and rules in the economic organization may be explained reasonably. In Chapter 4, the focus is on how rational individuals make their choice when confronting with interpersonal interests, i.e. the externalism and public products. Once the interpersonal interests do theoretically exist, the limited relative integration could be observed. And the observation can also be extended to the analysis of interpersonal interests existing in the economic organization in the non-pricing system. In Chapter 5, two problems are studied, one is the original interest source of economic organization i.e. the payment for the interpersonal cost, the other is the dynamic interest characteristic of economic organization i.e. the nature, derivation and dissipation of the rent. Once the interpersonal interests has been paid, and the rent been produced, the interpersonal harmony could be observed reliably. In Chapter 6, how the individuals in the economic organization deal with the conflict i.e. the balance between the freedom and efficiency rationally is discussed. In the conflict, harmony has reached its supreme definition: the co-existence and growth of heterogeneous individuals’ in a limited relative integration. Meanwhile the meanings of the freedom and efficiency have been expanded. That is to say, freedom is the freedom under the social rules, and efficiency is the unity of integral and individual efficiency. Hereby the conflict which supported the whole theory on the deep-gong basis possesses the ontological meaning.5. Problems to be resolved1. The Coase paradox. According to the paradox of Coase, it is told that an organization which does not theoretically existing does have a border. Under Coase’s concept of transaction cost, he pointed out there is cost when the price system being used to coordinate the individuals’ interests and behavior, and the cost can be observed in the firms’ vertical integration in a certain industry chain . He also pointed out the cost is a decisive variable of the border of a firm, which is a typical economic organization. Actually remaining as a part of the price, the transaction cost enters the price. Only at this moment, the price system thoroughly distributes the interests in the economic system among economic participants, and leads to the disappearance of the organization from economics theory. Consequently, the fact that a firm not existing has its scale makes the Coase paradox.2. The existence of integration rationality. The existence of relative integration is an inevitable consequence resulting from individuals’ rational choice on confronting the conflict between freedom and efficiency. Economics is set up on the basis of methodological individualism, and the individual rationality is a rational foundation to explain the economic behavior, so it is impossible that the collective rationality exists in such a theoretical system. However, once the concept integration parts from the absolute integration in human’s mind, and moves towards the realistic relative one, the individuals would make their choices under this kind of integrations rationally. This is the reason why we can learn that the economic organizations exist in the economic system. Meanwhile, the existence of economic organizations is also the evidence of the existence of corresponding collective rationality.3.The management or administrative behavior exists in the economic system should be relevant to its administrative interests, or named as supervision interests, management interests, because only the behaviors under the guide of interests accord with human’s reason.

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