Economic Wealth Creation and the Social Division of Labour : Volume II: Network Economies

'This is the second book of a two-volume set that continues Adam Smith's work, using the tools mathematical, experimental, and behavioural economists have developed since 1776. As in the first volume, markets are not the central organising principle. Instead, attention centres on social institutions and the division of labour that they enable. The book studies this via the endogenous division of labour that existing institutions help form. The first book in the series examined this problem deeply, resorting minimally to formal mathematical modelling; the second volume is where the formal modelling blossoms. General equilibrium theory meets network theory and receives a breath of fresh air, including a new viewpoint on economic inequality, the newly resurgent bane of capitalism. What I said for the first volume applies to this second volume equally: if you care to understand the economy, this book belongs to your bookshelf.' -Dimitrios Diamantaras, Temple University, Philadelphia, USA This textbook introduces and develops new tools to understand the recent economic crisis and how desirable economic policies can be adopted. Gilles provides new institutional concepts for wealth creation, such as network economies, which are based on the social division of labour. This second volume introduces mathematical theories of the endogenous formation of social divisions of labour through which economic wealth is created. Gilles also investigates the causes of inequality in the social division of labour under imperfectly competitive conditions. These theories frame a comprehensive, innovative and consistent perspective on the functioning of the twenty-first century global economy, explaining many of its failings. Suitable reading for advanced undergraduate, MSc and postgraduate students in microeconomic analysis, economic theory and political economy. Robert P. Gilles is Professor of Economics at Queen's University Belfast, UK. He has previously taught in the USA and the Netherlands. His research focuses on the economic theory of the social division of labour Preface 5 Acknowledgements 7 Contents 9 List of Figures 12 1 Commodities, Consumption and Production 14 1.1 Economic Wealth Creation and Economic Agents 16 1.2 Economic Goods and Commodities 21 1.3 Consumptive Needs and Preferences 25 1.4 Productive Abilities: Production Sets 31 1.4.1 Properties of Production Sets 33 1.4.2 Home-Based Production 35 1.4.3 Increasing Returns to Specialisation (IRSpec) 38 1.5 Consumer-Producers 44 1.5.1 A Comparison with Neo-Classical Economic Analysis 45 1.5.2 Absence of Trade Institutions: Commodity Barter 48 1.5.3 Mutual Price-Taking Behaviour 50 1.5.4 Trade Under Price Leadership 52 References 54 2 Wealth Creation in Primitive Economies 56 2.1 Autarkic Economies 59 2.1.1 Some Examples of Autarkic Agents 60 2.1.2 Sensitivity Analysis of Autarkic States 63 2.2 Barter in Monadic Economies 65 2.2.1 Monadic Barter Relationships 66 2.2.2 Barter Economies 79 2.3 Historical Context: The Early Medieval Village Economy 87 References 90 3 The Competitive Price Mechanism 92 3.1 The Law of One Price 98 3.1.1 The Dichotomy of Consumption and Production 99 3.1.2 Competitive Economies 101 3.2 Adaptive Specialisation: A Ricardian Perspective 105 3.2.1 Existence of Competitive Equilibria 110 3.2.2 Pareto Optimality and the Welfare Theorems 117 3.3 The Universality of Trade Mechanisms: Core Equivalence 121 References 127 4 Objective Specialisation: The Smithian Perspective 130 4.1 Economic Development and Socio-Economic Roles 131 4.1.1 The Smithian Perspective and Objective Specialisation 135 4.1.2 The Collective Nature of Objective Socio-Economic Roles 138 4.2 Smithian Competitive Economies 139 4.2.1 Smithian Equilibration Through the Social Division of Labour 144 4.2.2 Computing Competitive Equilibria in a Smithian Economy 150 4.2.3 International Trade: Explaining Global Divisions of Labour 154 4.2.4 Competitive Pricing and the Main Theories of Value 161 4.3 Smithian Competitive Economies and Leontief Systems 164 4.4 Some Advanced Considerations 175 4.4.1 Socio-Economic Embeddedness 176 4.4.2 To Trade or Not to Trade: The Effects of Trade Liberalisation 180 4.4.3 The Introduction of Wage Labour 186 References 195 5 Production Networks 197 5.1 Network Fundamentals 200 5.1.1 Network Connectivity 205 5.1.2 Connectivity in Undirected Networks 212 5.1.3 Network Thickness and Positional Contestation 218 5.1.4 Network Centrality 225 Degree Centrality and Its Variants 226 Eigenvalue Centrality 231 Closeness Centrality 233 Betweenness Centrality 234 5.2 Extractive Structures in Networks 235 5.2.1 Critical Sets 235 5.2.2 A Formalisation of Contestability in Networks 238 5.3 Formalising Production Networks 242 5.3.1 A Formal Definition of a Production Network 245 5.3.2 Categorisation of Production Networks 249 References 259 6 Inequality in Network Economies 262 6.1 Network Economies and Associated Equilibria 265 6.1.1 General Equilibria in Network Economies 268 6.1.2 Viability and the Multitude of General Equilibria 274 6.2 Competition in Production Networks: Balanced Equilibria 281 6.2.1 Balanced Equilibria for Separate Supply Chains 285 6.2.2 Balanced Equilibria for General Network Economies 291 6.3 Exploitation of Positional Power in Production Networks 298 6.4 Assessing Production Network Models 312 References 315 Index 317 "This textbook introduces and develops new tools to understand the recent economic crisis and how desirable economic policies can be adopted. Gilles provides new institutional concepts for wealth creation, such as network economies, which are based on the social division of labour. The first volume investigates the formation of networks and hierarchical authority organisations, with a focus on the role of trust. Gilles also looks at the theory of growth and development, using real world examples and problem sets to put into practice. The second volume introduces mathematical theories of the endogenous formation of social divisions of labour through which economic wealth is created. Gilles also investigates the causes of inequality in the social division of labour under imperfectly competitive conditions. These theories frame a comprehensive, innovative and consistent perspective on the functioning of the twenty-first century global economy, explaining many of its failings"--Site web de l'éditeur (v.1) Front Matter ....Pages i-xiv Commodities, Consumption and Production (Robert P. Gilles)....Pages 1-42 Wealth Creation in Primitive Economies (Robert P. Gilles)....Pages 43-78 The Competitive Price Mechanism (Robert P. Gilles)....Pages 79-116 Objective Specialisation: The Smithian Perspective (Robert P. Gilles)....Pages 117-183 Production Networks (Robert P. Gilles)....Pages 185-249 Inequality in Network Economies (Robert P. Gilles)....Pages 251-305 Back Matter ....Pages 307-311